The assumption that workers are paid their marginal product underlies the theory of competitive labor markets and is the basis for comparison with non-competitive markets. Many firms, however, generate revenue in fixed lump-sums that are unrelated to the efforts of current workers. For example, many professional sports receive substantial income from broadcast rights, which are negotiated at wide intervals. We develop a theory of compensation in the presence of “fixed revenue” and test our theory using data from the National Basketball Association. Our results indicate that TV revenue...Read more
