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Risk-Averse Team Owners and Players’ Salaries in Major League Baseball

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  • Anthony C. Krautmann

Abstract

This article looks at the role an owner’s attitude toward risk plays in his salary bids for free agents in Major League Baseball. We show that risk-averse owners will pay a premium for consistency on the field. Our empirical results are consistent with the hypothesis that a free agent’s contract terms are negatively related to the degree of variability in his performance. To the extent that our results carry over to all players, this suggests a heretofore unrecognized factor affecting the market for talent in professional sports.

Suggested Citation

  • Anthony C. Krautmann, 2017. "Risk-Averse Team Owners and Players’ Salaries in Major League Baseball," Journal of Sports Economics, , vol. 18(1), pages 19-33, January.
    • Handle: RePEc:sae:jospec:v:18:y:2017:i:1:p:19-33
    DOI: 10.1177/1527002514560577
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    References listed on IDEAS

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    Cited by:

    1. Rockerbie, Duane & Easton, Stephen, 2017. "Risk Diversification from Revenue Sharing in a Professional Sports League: Measuring Welfare Gains," MPRA Paper 77431, University Library of Munich, Germany.
    2. Stephen J. K. Walters & Peter Allmen & Anthony Krautmann, 2017. "Risk Aversion and Wages: Evidence from the Baseball Labor Market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 385-397, September.
    3. Duane Rockerbie & Stephen Easton, 2018. "Revenue Sharing in Major League Baseball: The Moments That Meant so Much," IJFS, MDPI, vol. 6(3), pages 1-16, August.
    4. Keefer, Quinn A.W., 2019. "Decision-maker beliefs and the sunk-cost fallacy: Major League Baseball’s final-offer salary arbitration and utilization," Journal of Economic Psychology, Elsevier, vol. 75(PB).

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