Money for nothing? Salary effects on performance of high-status NBA players

In this paper we examine the relationship between the quality of the resources obtained in exchange relationships, the status of the exchange partner, and the money paid to obtain these resources. We study both the determinants of the money paid to acquire resources and the consequences of money paid on quality, thereby developing four hypotheses. First, the money paid to obtain resources from an exchange partner is positively related to the past quality demonstrated by that exchange partner. Second, the money paid to obtain resources from an exchange partner is positively related to the status of that exchange partner. Third, as status of an exchange partner increases, the amount of money paid to obtain resources from an exchange partner will be less dependent on the past quality of that partner. Finally, the effect of money paid to obtain resources from an exchange partner on the subsequent quality of those resources will decrease as the status of the exchange partners increases. We use longitudinal data on all basketball players in the National Basketball Association (NBA) during the period 1989-2005 to examine the relationship between status, quality, and salary. The results support our hypotheses. Specifically, we find that the salary paid to NBA players is positively associated with their past performance and their status. However, the effect of past performance on the salary paid to NBA players decreases as the status of the player increases. Finally, the effect of salary on a player’s performance decreases as the player’s status increases.