This study focuses on 256 MLB free agent hitters playing under the 2006-2011 CBA to determine whether they boost their offensive performance in their contract year. Prior studies’ results are mixed, depending on the econometric technique used and the choice of the offensive performance measure.
Having multiple year observations per player, one can incorporate the unobserved traits of the players (ability, risk aversion, work ethic, etc.) by using Fixed Effects (FE) estimation. Since these unmeasured player traits are likely to be correlated with observed predictors of performance (games played, playoff contention, age, etc.), traditionally used Ordinary Least Squares (OLS) and Pooled OLS estimations ignore these correlations and yield biased results that often show no contract year performance boost.
Using FE estimation, the results indicate increases in adjusted-OPS and OPS during the contract year. The latter represents an increase in salary in the next contract equivalent to 5-8% of the 2011 average MLB salary.
Most prior research ignores a player’s intention to retire. If retiring players are less productive, then failing to control for retirement leads to results that imply no contract year phenomenon.
O'Neill, Heather M., "Do MLB Hitters Boost Performance in Their Contract Year?" (2013). Business and Economics Faculty Publications. 10.
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