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An Economic Evaluation of the Moneyball Hypothesis

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  • Jahn K. Hakes
  • Raymond D. Sauer

Abstract

Michael Lewis's book, Moneyball , describes how an innovative manager working for the Oakland Athletics successfully exploited an inefficiency in baseball's labor market over a prolonged period of time. We evaluate Lewis's claims by applying standard econometric procedures to data on player productivity and compensation from 1999 to 2004. These methods support Lewis's argument that certain baseball skills were valued inefficiently in the early part of this period, and that this inefficiency was profitably exploited by managers with the ability to generate and interpret statistical knowledge. Consistent with Lewis's story and economic reasoning, as knowledge of the inefficiency became increasingly dispersed across baseball teams the market corrected the original mispricing.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.20.3.173
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 20 (2006)
Issue (Month): 3 (Summer)
Pages: 173-186

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Handle: RePEc:aea:jecper:v:20:y:2006:i:3:p:173-186

Note: DOI: 10.1257/jep.20.3.173
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  1. Ignacio Palacios-Huerta & Oscar Volij, . "Experientia Docet: Professionals Play Minimax In Laboratory Experiments," Economic theory and game theory 019, Oscar Volij.
  2. Brown, William O & Sauer, Raymond D, 1993. "Does the Basketball Market Believe in the Hot Hand? Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1377-86, December.
  3. Kahn, Lawrence M, 1993. "Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 157-64, February.
  4. McCormick, Robert E & Tollison, Robert D, 1984. "Crime on the Court," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 223-35, April.
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Cited by:
  1. Hamermesh, Daniel S. & Pfann, Gerard A., 2009. "Markets for Reputation: Evidence on Quality and Quantity in Academe," IZA Discussion Papers 4610, Institute for the Study of Labor (IZA).
  2. Jahn Hakes & Chad Turner, 2011. "Pay, productivity and aging in Major League Baseball," Journal of Productivity Analysis, Springer, vol. 35(1), pages 61-74, February.
  3. Martin Schmidt, 2011. "Institutional Change and Factor Movement in Major League Baseball: An Examination of the Coase Theorem’s Invariance Principle," Review of Industrial Organization, Springer, vol. 39(3), pages 187-205, November.
  4. Young Lee, 2011. "Is the small-ball strategy effective in winning games? A stochastic frontier production approach," Journal of Productivity Analysis, Springer, vol. 35(1), pages 51-59, February.

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