Compensation and performance in Major League Baseball: Evidence from salary dispersion and team performance

Yu-Li Tao, Hwei-Lin Chuang and Eric Lin

International Review of Economics & Finance, 2016, vol. 43, issue C, 151-159

Abstract: This study examines the relation between compensation and performance in Major League Baseball (MLB), focusing on salary dispersion and team performance based on 1985–2013 MLB data. We examine whether the tournament theory or the team-cohesiveness hypothesis dominates the relationship. We also use the relative position of team payroll as one of the control variables and compare our findings with the results based on the absolute level of team payroll. This study applies a dynamic panel estimation approach. Our evidence overall supports the team-cohesiveness hypothesis over the tournament theory. We find that greater wage disparity is negatively related to team performance. Our findings also suggest that salary structure is not a robust incentive design for team performance in MLB. A different treatment of payroll variables alters the role of salary dispersion. When we take the payroll level as a control variable, salary dispersion shows a negatively significant effect on team performance, while it has an insignificant effect on team performance when the payroll's relative position is used as a control variable.

Keywords: Salary dispersion; Team performance; MLB; Dynamic panel estimation (search for similar items in EconPapers)
JEL-codes: J31 J33 J44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:43:y:2016:i:c:p:151-159

DOI: 10.1016/j.iref.2015.10.037

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