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Equilibrium Explanation of Bargaining and Arbitration in Major League Baseball


  • David J. Faurot

    (University of Kansas)


Arbitration in Major League Baseball can be explained by baseball clubs’ lack of information regarding their players’ risk attitudes. Different player risk attitudes yield different contract zones of potential settlements. Profit-maximizing baseball clubs must sacrifice some potential settlements to minimize their expected payments to players. Mixed strategies in arbitration offers by players and settlement offers by clubs yield an equilibrium in a game with asymmetric information. The history of arbitration outcomes is explained by the predicted selection of cases for arbitration.

Suggested Citation

  • 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.
  • Handle: RePEc:sae:jospec:v:2:y:2001:i:1:p:22-34

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    Cited by:

    1. Farmer, Amy & Pecorino, Paul & Stango, Victor, 2004. "The Causes of Bargaining Failure: Evidence from Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 543-568, October.

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