This paper examines the principal-agent problem within professional sports. Imperfect information between managers and players, as well as the guaranteed income a long-term contract provides, are predicted to provide players with the incentive to alter effort over the length of a contract – especially during the first year of a long-term contract. Regression analysis indicates that players’ performance levels decline during the first year of a long-term contract, suggesting that the effects of the principal-agent problem may outweigh competing effects. The study does not, however, suggest that players increase performance in the final year of a contract.
Purcell, Elizabeth A.R.
"Long-Term Contracts and the Principal-Agent Problem,"
Gettysburg Economic Review: Vol. 3, Article 5.
Available at: https://cupola.gettysburg.edu/ger/vol3/iss1/5