Abstract
We develop a general theoretical model of the effect of wage dispersion on team performance which nests two possibilities: wage inequality may have either negative or positive effects on team performance. A parameter which captures the marginal cost of effort, which we estimate using game-level data from Major League Baseball, determines whether wage dispersion and team performance are negatively or positively related. We find low marginal cost of effort; consequently, wage disparity is negatively related to team performance. Game and season-level regressions also indicate a negative relationship between inequality and performance. We discuss a variety of interpretations of our results.
| Original language | English |
|---|---|
| Pages (from-to) | 271-281 |
| Number of pages | 11 |
| Journal | Applied Economics |
| Volume | 46 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Jan 2014 |