The Upside Potential of Hiring Risky Workers: Evidence from the Baseball Industry

Abstract

Making use of performance data for baseball players, this article provides empirical evidence in support of Lazear's (1998) theoretical predictions that (1) risky workers will earn a premium for their upside potential, (2) this risk premium will be higher the longer a worker's work life, and (3) firms must enjoy some comparative advantage in the labor market to be willing to pay a premium to risky workers. The validity of Lazear's predictions carries implications for wage differentials between young and old workers and between men and women.

The NBA Draft

“…In addition to the Hendricks et al (2003) findings on the option model, Bollinger and Hotchkiss (2003) find evidence in support of the option value model of labor hiring. They examine the performance of Major League Baseball (MLB) players (excluding pitchers) from 1987 to 1993.…”

Do Fans Want Close Contests? A Test of the Uncertainty of Outcome Hypothesis in the National Basketball Association

“…Overall, whether or not an individual owner is a win maximizer, profit maximizer, or combination of the two, drawing the largest crowds possible is almost certainly going to be aligned with those broader objectives. Moreover, Bollinger & Hotchkiss (2003) reason that profit maximization (or near profit maximization) is likely to be the most common objective in Major League Baseball, for instance.…”

Choosing the Devil You Don’t Know: Evidence for Limited Sensitivity to Sample Size–Based Uncertainty When It Offers an Advantage

“…Firms below the industry's median show higher variability on returns on investment, presumably reflecting the adoption of more uncertain strategies when below the stretch target of the industry benchmark (Fiegenbaum and Thomas 1988). Yet only sometimes do young workers receive risk premiums when it seems they should (Bollinger and Hotchkiss 2003, Burgess et al 1998, Hendricks et al 2003, Lazear 1995.…”