Termination Risk and Agency Problems: Evidence from the NBA

Alma Cohen, Nadav Levy, Roy Sasson

Research output: Contribution to journalArticlepeer-review


When agents with a significant risk of termination in the short term have discretion over project selection, they may have incentives to underinvest in projects whose results would be realized only in the long term, and owners may take this agency problem into account when deciding whether to grant those agents discretion in decision-making. Because NBA rookies who participate in games gain NBA experience that likely improves their long-term performance, decisions of NBA teams about whether to let rookies play provide a useful context for investigating this potential agency problem. We develop a model that identifies when owners will choose to leave coaches with discretion over rookie participation decisions and shows that, in the presence of such discretion, coaches facing a higher termination risk can be expected to use rookies less often. Testing our model using NBA data, we find evidence that is consistent with the predictions of our model.

Original languageEnglish
Pages (from-to)579-618
Number of pages40
JournalJournal of Law, Economics, and Organization
Issue number4
StatePublished - 1 Nov 2018

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management
  • Law


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