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'Who's on first': an empirical test of the Coase Theorem in baseball

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  • Donald Cymrot
  • James Dunlevy
  • William Even

Abstract

Because of their highly developed skills, major league baseball players generate significant economic rents. According to the 'weak version' of the Coase theorem, the allocation of these players is independent of who controls the rights to these rents, which depends on the rules governing competition in the baseball labour market. The rules of Major League Baseball establish a dual system. For senior players the market is competitive, and players have the right of 'free agency,' allowing them to attempt to contract with the team of their choice; for players with fewer years of experience the market is monopsonistic, and a player's right to play baseball is owned by his current team. Consequently, we simultaneously observe two different allocations of property rights. Using individual player data for 1979 and 1980 we test whether baseball player movement is independent of the ownership of these rents. We estimate the wage (marginal revenue) determination process for free-agent and non free agent movers and non-movers. This permits us to generate expected gains from a move for both free-agent eligible and non free-agent eligible players. Coase's theorem is tested by determining if both player types, and, hence, player allocation, are equally responsive to gains from migration.

Suggested Citation

  • Donald Cymrot & James Dunlevy & William Even, 2001. "'Who's on first': an empirical test of the Coase Theorem in baseball," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 593-603.
  • Handle: RePEc:taf:applec:v:33:y:2001:i:5:p:593-603
    DOI: 10.1080/00036840122414
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    Cited by:

    1. Jennifer K. Ashcraft & Craig A. Depken, 2020. "The introduction of the reserve clause in Major League Baseball: evidence of its impact on select player salaries during the 1880s," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 14(1), pages 105-128, January.
    2. Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.
    3. Aju Fenn & Peter Allmen & Stacey Brook & Thomas Preissing, 2005. "The Influence of Structural Changes and International Players on Competitive Balance in the NHL," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(2), pages 215-224, June.
    4. Akee, Randall K. Q., 2006. "Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets," IZA Discussion Papers 2438, Institute of Labor Economics (IZA).

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