Sunday, July 25, 2010

A Question

If the NBA didn't have salary ceilings, with what team would Lebron James have signed?

I think it would have been between New York and Cleveland. The idea being Cleveland would have had to give him at least a 10% stake in the team. New York could have paid him $50 million a year and still have made money. I am assuming classic economic theory that he would have ended up where his marginal product was the highest. So rephrasing the question, where would Lebron James' marginal product have been the highest? Would Miami still have been in the mix due to the "no state income tax" factor? What about Dallas and Mark Cuban and Cowboys Stadium and "no state income tax"?

Part of what I am getting at is that this whole Lebron fiasco was caused by salary ceilings. The NBA changed the game to make endorsement money more important than it would be without ceilings. Given the ceiling, it makes sense that Lebron considered his friendships and personal feelings in his (the) decision.

It worries me that more people aren't talking about this perverse effect of ceilings.


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