The Park Place Economist


In the business world, every firm faces salary allocation decisions. Managers and executives of companies have to ask themselves how to allocate salaries across positions. This question also applies to teams within the National Basketball Association (NBA). NBA players provide a differing amount of value to their respective team and therefore are worth different amounts of money in comparison to one another. General managers have to decide which players to sign as well as figure allocation decisions of the salary they distribute to their signed players. An important research question to consider is: What is the best way to allocate salary amongst a NBA team? The term “best” in this situation can be interpreted in different ways. First, “best” can be viewed as a salary distribution that maximizes wins. Wins are obviously important to fans and are also important to management. In addition to win maximizing, “best” can also be viewed as a salary distribution that maximizes revenue as each team is attempting to make money.