Do Employers Pay for Consistent Performance?: Evidence from the NBA

Orn B Bodvarsson and Raymond T Brastow

Economic Inquiry, 1998, vol. 36, issue 1, 145-60

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? The authors 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, the authors find that consistent professional basketball players are paid more but, in contrast to previous studies, there is no evidence of discrimination. Copyright 1998 by Oxford University Press.

Date: 1998
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