The Underpaid Superstar

Parity amongst teams is often thought to be the ideal towards which a sports association shouldstrive. Most leagues implement salary caps, reverse order drafts, and/or revenue sharing topromote competitive balance. However, in the 1999 collective bargaining agreement, the NBAadopted a max contract that limits the amount that an individual player can be paid. Theoreticallythis works against parity as high-end players can be obtained below market value, which in turnprovides surplus wins to the teams that are able to acquire these players. Here we will showempirically that the max contract does in fact negatively affect competitive balance in the 2015-2016 NBA microeconomy, though the benefits only significantly impact a small handful of teams