Addressing endogeneity in marginal revenue product estimates of shirking in Major League Baseball

Abstract

PurposeWhile much of the literature testing for shirking by professional athletes have used performance metrics, some works have quantified shirking in dollar terms by comparing salary to estimated marginal revenue product (MRP). However, Ordinary Least Squares (OLS) approaches to measuring shirking by comparing salary to MRP have an endogeneity problem, as salary and contract length are determined simultaneously. We test for shirking in Major League Baseball (MLB) using an MRP approach, addressing this potential endogeneity.Design/methodology/approachThis paper uses instrumental variables regression to address potential endogeneity using MLB season-level player and team data from 2010 to 2017.FindingsUsing OLS regression, the impact of an additional year of guaranteed contract on shirking is estimated at approximately $1m in 2010 US dollars, and the impact of having a long-term contract is estimated at $5m, estimates comparable to those in the literature. Using instrumental variables regression, these impacts increase to $1.6m and over $9m in 2010 dollars.Practical implicationsGiven large, causal shirking estimates, profit maximizing sports organizations should take caution when negotiating long-term contracts. These findings also have important implications for other labor market settings where workers feel job security.Originality/valueTo our knowledge, this is the first work testing for shirking in sports using an MRP approach which uses instrumental variables regression to address potential endogeneity.