Many professional sports athletes have incentive clauses in their contracts.These indicate that
A) the team owner has asymmetric information.
B) the athlete might engage in moral hazard, which the team owner wishes to avoid.
C) the athlete might engage in adverse selection, which the team owner wishes to avoid.
D) the athlete has stronger negotiators.

Question

Quizplus · Accepted Answer

Incentive clauses in contracts are designed to motivate athletes to perform better, as they are rewarded with bonuses if they achieve specific goals or milestones. The inclusion of these clauses suggests that the team owner is concerned about moral hazard, which occurs when one party has an incentive to take excessive risks or shirk their responsibilities because they will not bear the full consequences of their actions. The team owner wants to incentivize the athlete to work harder and achieve better results, rather than taking shortcuts or not putting in maximum effort. Adverse selection, asymmetrical information or stronger negotiators are not relevant factors in the use of incentive clauses in contracts.

Many Professional Sports Athletes Have Incentive Clauses in Their Contracts