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An Analysis of Final Offers Chosen in Baseball's Arbitration System

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  • Phillip A. Miller

    (University of Missouri-Columbia)

Abstract

This article describes a model of final offer arbitration, like that used in major league baseball, in which two stages of wage bargaining exist between a risk-averse firm and a risk-averse employee. In the first stage, the negotiators set final offers. In the second stage, the negotiators bargain cooperatively. Using data from major league baseball, it is found that in cases involving position players and relief pitchers, negotiators set final offers in a risk- neutral manner. In cases involving starting pitchers, negotiators bargain in a non-risk-neutral manner.

Suggested Citation

  • Phillip A. Miller, 2000. "An Analysis of Final Offers Chosen in Baseball's Arbitration System," Journal of Sports Economics, , vol. 1(1), pages 39-55, February.
    • Handle: RePEc:sae:jospec:v:1:y:2000:i:1:p:39-55
    DOI: 10.1177/152700250000100104
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    References listed on IDEAS

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    1. Vincent P. Crawford, 1982. "Compulsory Arbitration, Arbitral Risk and Negotiated Settlements: A Case Study in Bargaining under Imperfect Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 69-82.
    2. Amy Farmer Curry & Paul Pecorino, 1993. "The Use of Final Offer Arbitration as a Screening Device," Journal of Conflict Resolution, Peace Science Society (International), vol. 37(4), pages 655-669, December.
    3. Henry S. Farber & Harry C. Katz, 1979. "Interest Arbitration, Outcomes, and the Incentive to Bargain," ILR Review, Cornell University, ILR School, vol. 33(1), pages 55-63, October.
    4. Gibbons, Robert, 1988. "Learning in Equilibrium Models of Arbitration," American Economic Review, American Economic Association, vol. 78(5), pages 896-912, December.
    5. Myerson, Roger B, 1984. "Two-Person Bargaining Problems with Incomplete Information," Econometrica, Econometric Society, vol. 52(2), pages 461-487, March.
    6. Steven J. Brams & Samuel Merrill, III, 1983. "Equilibrium Strategies for Final-Offer Arbitration: There is no Median Convergence," Management Science, INFORMS, vol. 29(8), pages 927-941, August.
    7. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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    Cited by:

    1. John Fizel & Anthony C. Krautmann & Lawrence Hadley, 2002. "Equity and arbitration in major league baseball," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(7), pages 427-435.
    2. J. Richard Hill & Nicholas A. Jolly, 2014. "Negotiated Settlement Under Mlb Final-Offer Salary Arbitration System," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 533-543, April.
    3. David J. Faurot, 2001. "Equilibrium Explanation of Bargaining and Arbitration in Major League Baseball," Journal of Sports Economics, , vol. 2(1), pages 22-34, February.

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