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Atlantic Economic Journal

, Volume 45, Issue 3, pp 385–397 | Cite as

Risk Aversion and Wages: Evidence from the Baseball Labor Market

  • Stephen J. K. WaltersEmail author
  • Peter von Allmen
  • Anthony Krautmann
Article

Abstract

We develop a bargaining model to assess how workers and employers might allocate wages inter-temporally in order to cope with risk. We then apply this model to 106 long-term contracts for major league baseball players’ services. Most of these agreements not only smooth employee compensation over time but suggest greater relative risk aversion for teams than players. Compared to the wages they might pay to retain these players on a succession of one-year contracts, teams often pay a premium on longer-term agreements to protect against market volatility and potential inability to replace a key player on the open market.

Keywords

Wages Risk Contracts Sports 

JEL

D80 J30 J50 Z20 

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Copyright information

© International Atlantic Economic Society 2017

Authors and Affiliations

  • Stephen J. K. Walters
    • 1
    Email author
  • Peter von Allmen
    • 2
  • Anthony Krautmann
    • 3
  1. 1.Department of EconomicsLoyola University MarylandBaltimoreUSA
  2. 2.Department of EconomicsSkidmore CollegeSaratoga SpringsUSA
  3. 3.Department of EconomicsDePaul UniversityChicagoUSA

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