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Suppose you are a factory worker for a company, maybe at Lids for example, and you are entering your fifth year of work. For the previous four years, you have produced between 300 and 400 caps per year, receiving the same amount of pay whether you produced 300 or 400 caps in a given year. However, upon entering your fifth year, you are informed that next year's salary, and the years' salaries after that, will be determined on your level of output. So, unless you are Pacman Jones, whose incentive to play football cannot keep him out of strip clubs, you work harder and more efficiently in an attempt to increase your production, ultimately increasing your salary for the following year.
The outcome in this hypothetical situation holds similar to the theory of free agency as an incentive for Major League Baseball players to perform better in their walk year. Many fantasy owners, myself included, clamor for these players, namely batters, whose contracts expire at the end of the season in hopes of benefiting from the increased production.
But, are we jumping the gun on these players for no reason?
Sports psychologists have taken interest into the theory of free agency as a positive incentive for players, and some studies have suggested that we may be right in our thinking of ranking these players higher on our draft sheets. In one particular study done on the effect of free agency, titled "Performance-Undermining Effects of Baseball Free Agent Contracts", the authors concluded that, in general, players in the last year of their contracts performed better than the year previous to that.
As is the case with any theory, however, there are always contradictions that defy the trends... (Read the full article here: Free Agency as a Player Incentive)