Economics and Accounting Honors Theses

Date of Creation

5-1-2022

Degree Type

Departmental Honors Thesis - Restricted Access

First Advisor

Professor Joshua Congdon-Hohman

Abstract

This paper attempts to expand the agency theory literature in baseball, by examining the role that incentive clauses have in player statistical performance and front office acquisitions. This paper most resembles Paulsen’s study on the relationship between player performance and contract options. Data for this paper was gathered via “Cot’s Baseball Contracts”, for data on player contract information, and “BaseballReference.com” and “RotoWire” for information on player statistical performance, age, and injury history. Using logistic and linear regression on hitters, starting pitchers, and relief pitcher groups, this paper examines whether certain player traits and past performance can predict the prevalence of incentives in contracts, the impact of incentive clauses on the average salary of a player, and whether the presence of incentives are associated with future performance outcomes. Ultimately this paper finds that past player performance did seem to impact the presence of incentive clauses. In addition, apart from starting pitchers, a player’s AAV was negatively associated with incentive clauses. Finally, while analyses on starting pitchers did not yield expected results, the analyses for hitters and relief pitchers did indicate a statistically significant association between incentive clauses and improved player performance, and produced an interesting relationship between the type of incentive given to a certain player, and player performance. Possible areas to expand on this research include gathering more data, and performing this analysis on each position group

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