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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.

Suggested Citation

  • 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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    Cited by:

    1. Jacob Andrew Loree, 2016. "Determinants of Baseball Success: An Econometric Approach," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 1-12, December.
    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. Dr Alex Bryson, 2009. "The Returns to Scarce Talent: Footedness and Player Remuneration in European Soccer," National Institute of Economic and Social Research (NIESR) Discussion Papers 339, National Institute of Economic and Social Research.
    5. Hamermesh, Daniel S. & Pfann, Gerard A., 2009. "Markets for Reputation: Evidence on Quality and Quantity in Academe," IZA Discussion Papers 4610, Institute for the Study of Labor (IZA).
    6. 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.
    7. Alex Bryson, 2014. "All-Star or Benchwarmer? Relative Age, Cohort Size and Career Success in the NHL," National Institute of Economic and Social Research (NIESR) Discussion Papers 441, National Institute of Economic and Social Research.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Eberhard Feess & Bernd Frick & Gerd Muehlheusser, 2004. "Legal Restrictions on Buyout Fees: Theory and Evidence from German Soccer," Diskussionsschriften dp0411, Universitaet Bern, Departement Volkswirtschaft.
    13. Turner, Chad & Hakes, Jahn Karl, 2007. "The Collective Bargaining Effects of NBA Player Productivity Dynamics," MPRA Paper 5058, University Library of Munich, Germany.
    14. 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.
    15. repec:kap:atlecj:v:45:y:2017:i:3:d:10.1007_s11293-017-9545-7 is not listed on IDEAS
    16. 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.
    17. 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.
    18. 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.
    19. 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.
    20. Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.
    21. 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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