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Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data

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  • Kahn, Lawrence M

Abstract

Using longitudinal data for major league baseball players, this paper estimates the effects of eligibility for free agency or arbitration on compensation and contract duration. Becaus e eligibility is based on experience and better players are kept longe r, a fixed effects approach is used. Arbitration and free agency eligibility both raised annual compensation; however, only free agen cy raised contract duration. The free agency findings are consistent wi th Nash bargaining; however, additionally considering the arbitration results suggests the "winner's curse": duration rises only when a team might lose a player. The auction market is thus avoided. Copyright 1993 by MIT Press.

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  • Kahn, Lawrence M, 1993. "Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 157-164, February.
  • Handle: RePEc:tpr:restat:v:75:y:1993:i:1:p:157-64
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    1. repec:eee:spomar:v:21:y:2018:i:2:p:189-201 is not listed on IDEAS
    2. Matthew Clayton & David Yermack, 1999. "Major League Baseball Player Contracts: An Investigation of the Empirical Properties of Real Options," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-051, New York University, Leonard N. Stern School of Business-.
    3. repec:kap:iaecre:v:19:y:2013:i:3:p:215-232 is not listed on IDEAS
    4. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 2009. "Markets for Reputation: Evidence on Quality and Quantity in Academe," CEPR Discussion Papers 7603, C.E.P.R. Discussion Papers.
    5. Koop G., 2002. "Comparing the Performance of Baseball Players: A Multiple-Output Approach," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 710-720, September.
    6. Donald Richards & Robert Guell, 1998. "Baseball success and the structure of salaries," Applied Economics Letters, Taylor & Francis Journals, vol. 5(5), pages 291-296.
    7. Hsuan-Yu Lin & Chih-Hai Yang, 2016. "Uncertainty, specific investment, and contract duration: evidence from the MLB player market," Empirical Economics, Springer, vol. 50(3), pages 1009-1028, May.
    8. Jahn Hakes & Chad Turner, 2011. "Pay, productivity and aging in Major League Baseball," Journal of Productivity Analysis, Springer, vol. 35(1), pages 61-74, February.
    9. Bryson, Alex & Gomez, Rafael & Zhang, Tingting, 2014. "All-Star or Benchwarmer? Relative Age, Cohort Size and Career Success in the NHL," IZA Discussion Papers 8645, Institute for the Study of Labor (IZA).
    10. Brad R. Humphreys & Jie Yang, 2014. "Peer Enforcement in Teams: Evidence from High-Skill Professional Workers with Repeated Interactions," Working Papers 14-24, Department of Economics, West Virginia University.
    11. Joel Maxcy, 2004. "Motivating long-term employment contracts: risk management in major league baseball," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(2), pages 109-120.
    12. Alex Bryson & Bernd Frick & Rob Simmons, 2009. "The Returns to Scarce Talent: Footedness and Player Remuneration in European Soccer," CEP Discussion Papers dp0948, Centre for Economic Performance, LSE.
    13. Robert S. Huckman & Gary P. Pisano, 2006. "The Firm Specificity of Individual Performance: Evidence from Cardiac Surgery," Management Science, INFORMS, vol. 52(4), pages 473-488, April.
    14. Heather O’Neill, 2013. "Do Major League Baseball Hitters Engage in Opportunistic Behavior?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 215-232, August.
    15. Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.
    16. Feess, Eberhard & Frick, Bernd & Muehlheusser, Gerd, 2004. "Legal Restrictions on Buyout Fees: Theory and Evidence from German Soccer," IZA Discussion Papers 1180, Institute for the Study of Labor (IZA).
    17. Jacob Andrew Loree, 2016. "Determinants of Baseball Success: An Econometric Approach," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 1-12, December.
    18. Alexandre Olbrecht, 2007. "The economic return to college attendance for major league baseball players," Applied Economics Letters, Taylor & Francis Journals, vol. 14(13), pages 981-985.
    19. Jahn K. Hakes & Raymond D. Sauer, 2006. "An Economic Evaluation of the Moneyball Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 173-186, Summer.
    20. Bernd Frick & Rob Simmons, 2014. "The footballers’ labour market after the Bosman ruling," Chapters,in: Handbook on the Economics of Professional Football, chapter 13, pages 203-226 Edward Elgar Publishing.
    21. Turner, Chad & Hakes, Jahn Karl, 2007. "The Collective Bargaining Effects of NBA Player Productivity Dynamics," MPRA Paper 5058, University Library of Munich, Germany.
    22. repec:kap:atlecj:v:45:y:2017:i:3:d:10.1007_s11293-017-9545-7 is not listed on IDEAS
    23. Jahn K. Hakes & Chad Turner, 2008. "Long-Term Contracts in Major League Baseball," Working Papers 0831, International Association of Sports Economists;North American Association of Sports Economists.
    24. Lawrence M. Kahn, 2000. "The Sports Business as a Labor Market Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 75-94, Summer.

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