DO EMPLOYERS PAY FOR CONSISTENT PERFORMANCE?: EVIDENCE FROM THE NBA

Authors

  • ÖRN B. BODVARSSON,

    1. Professor, Department of Economics St. Cloud State University, St. Cloud, Minnesota Phone 1–320-255-2968, Fax 1–320-255-2228 E-mail i00002@stcloudstate.edu
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  • RAYMOND T. BRASTOW

    1. Associate Professor, School of Business and Economics, Longwood College, Farmville, Virginia Phone 1–804-395-2370, Fax 1–804-395-2203 E-mail rbrastow@longwood.lwc.edu
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    • *We thank the Office of Sponsored Programs at St. Cloud State University for funding our data collection, as well as Steven Landis and Brian Rousslang for assisting us with data collection. We also thank Mark Zupan, Mark Partridge and two anonymous referees for helpful comments.


Abstract

In a world of uncertainty in which a worker's performance is variable over time and average performance is unknown when hiring, how will employers determine compensation? We develop a monitoring and signaling model where information is symmetric and parties are risk neutral. Monitoring costs increase with inconsistency, lowering pay for inconsistent workers. If discrimination exists, minority workers will be rewarded less than majority workers for improving consistency. Testing these and other predictions using National Basketball Association data, we find that consistent professional basketball players are paid more, but, in contrast to previous studies, there is no evidence of discrimination. (JEL J3, J7)

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