A simple economic model of today’s NBA

Given economic bad times, many teams have overspent.  But they have lots of long-term contracts, plus there is a salary cap and luxury tax for going above that cap.  Real wages ought to fall but most of them cannot fall right away.  If a player becomes a free agent, few teams will bid and those players will absorb a disproportionate share of the required wage cuts (the pricing of complementary inputs had some indeterminacy anyway, plus there is an AC constraint). 

The lower returns available mean that a given free agent is more likely to be a self-deluding trouble maker who has worn out his welcome (Artest, Gordon, etc.).  This favors teams with dominant players (Cleveland), strong systems (Boston), and strong coaches.  All those teams can swallow the troublemakers without cracking up.  It also favors teams which suffer from well-defined "missing pieces."  It favors already-good teams and indeed we see that Cleveland, Orlando, San Antonio, and LA have been major players in the free agent or trade markets.

I predict a greater dispersion of win totals for next year's season.

I am wondering to what extent a similar analysis applies to economics departments, or to teams of bloggers, or to other groups of complementary labor inputs.

Addendum: TrueHoop comments.


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