Date of Award

12-2014

Document Type

Thesis

Degree Name

Master of Arts (MA)

Legacy Department

Economics

Advisor

Dr. Chungsang Lam

Committee Member

Dr. F. Andrew Hanssen

Committee Member

Dr. Jaqueline Oliveira

Abstract

Based on lots of previous research, the salary in National Basketball Association is determined by both personal characteristics and on-court performance. However, which kind of performance seems more important? Furthermore, does signing a new contract have any incentive or effect on the player's performance which makes the player be overpaid or underpaid in the year of signing the contract? And which kind of contracts and what kind of players tend to be overpaid? In my paper I introduce the on-court performance, personal characteristics and salary. Then I build a connection between them and run 2 regressions to analyze the determinants of salary and overpayment in the year of signing a new contract. In my first regression, I found that the player's salary is not just determined by the performance in the contract year, but the performance in the contract year and one year before that. I also found some interesting results like height is more important than weight, All star player salary premium exits in NBA. In the contract year, hitting a 3 point shot could always bring more expected future income than hitting a 2 point shot or hitting a free throw and some other funny results. In my second regression, I found that offering a big contract always lead to overpayment in the year of signing the contract. I also found that providing a contract to an all star player could brings benefit to the team in the year of signing a new contract, and providing a contract to an old player might not be a wise choice. The first regression tells us what factors are the determinants of expected salary, and which kind of performance is more important. It could help players to make the optimal choice of seeking a new contract. The second regression tells us what type of contract and what kind of players tend to be overpaid or underpaid. It may help team managers to make the choice when they provide a new contract.

Included in

Economics Commons

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