Playing for Keeps: Pay and Performance in the Nba

This paper examines contract‐related incentive effects using a unique dataset on individual performance and individual contracts. Evidence from professional basketball players in the 1980s and 1990s shows that individual performance improves significantly in the year before signing a multi‐year contract but declines after the contract is signed. One interpretation is that workers strategically increase effort to obtain the most lucrative, multi‐year contract but then reduce it once the contract is locked in. This highlights the double‐edged nature of long‐term contracts: good for employers when workers are fighting for them, but less so when workers have them. ( JEL J22, J3)