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Moral Hazard and NBA Player Effort Before and After They Sign Long Term Contracts

Friday, January 6, 2017 10:03
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Rick Barry and Nobel Laureate Bengt Holmstrom should write a principal-agent hidden effort paper together.   Barry argues that the reason the NBA Portland Blazers are playing much worse as a team this year is because key players received long term contracts at the start the season and now these stars are no longer exerting effort.   The more interesting piece in this article is Barry’s points about a player’s character.  Barry argues that the Portland team’s general manager is to blame here because if the GM had anticipated that certain players have a “costly effort” character then he should have anticipated that they would shirk once they have the long term contract.

So, is “character” observable?  Is it a fixed or highly serially correlated attribute?  What Big Data metrics can be used to measure this to help corporations select the right people for tasks?

In my past work on environmentalism, I have argued that liberals need weaker incentives to engage in sustainable activity than conservatives.  In that case, we are studying effort committed to protecting the environment. Barry is talking about defensive effort and other team sacrifices.

Read my peer reviewed papers;

Dora L. Costa & Matthew E. Kahn, 2013. “Energy Conservation “Nudges” And Environmentalist Ideology: Evidence From A Randomized Residential Electricity Field Experiment,” Journal of the European Economic Association, European Economic Association, vol. 11(3), pages 680-702, 06.

    Costa, Dora L. & Kahn, Matthew E., 2013. “Do liberal home owners consume less electricity? A test of the voluntary restraint hypothesis,” Economics Letters, Elsevier, vol. 119(2), pages 210-212.

    Kahn Matthew E & Vaughn Ryan K., 2009. “Green Market Geography: The Spatial Clustering of Hybrid Vehicles and LEED Registered Buildings,” The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(2), pages 1-24, March.

    Kahn, Matthew E., 2007. “Do greens drive Hummers or hybrids? Environmental ideology as a determinant of consumer choice,” Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 129-145, September.

    So, in a world where agents have heterogeneous ideology characteristics such as personality, ideology and conscience , different people need different incentives to nudge them to exert costly effort.

    If the principal can’t observe a person’s type or their effort , what is the optimal contract to achieve a specific goal?  You may design the contract to select types of people you want and then a second contract to incentivize this subset to engage in effort (see the old JPE paper by Lazear and Kendall).


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