A Theoretical and Empirical Comparison of Free Agent and Arbitration-Eligible Salaries Negotiated in Major League Baseball
AbstractThis paper presents a theoretical and empirical comparison of determination of negotiated salaries in baseball’s free agent market to that in its final-offer arbitration (FOA) system. The theoretical bargaining model of each system is based on Nash (1950). It is argued that Farber’s (1980) model of FOA is not fully applicable in explaining baseball’s FOA process. The free agent market and the arbitration system each determine negotiated salaries that are dependent on the different disagreement outcomes of the negotiators in the respective systems. It is thus concluded theoretically that the two systems will determine salaries differently. The theoretical analysis also suggests that there may be selection bias present when one empirically analyzes only negotiated settlements. Using a straightforward regression model that controls for productivity, playing experience, and the potential selection bias, the empirical analysis substantiates the theory’s results. A method is then developed to estimate the effect that free agent salaries have on salaries for arbitration-eligible players. It is found that there is a significant positive relationship between them, but the systems do not determine equal salaries for comparable players.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 67 (2000)
Issue (Month): 1 (July)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Razzolini).
If references are entirely missing, you can add them using this form.