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Institutional settings and rent appropriation by knowledge-based employees: the case of Major League Baseball

  • Aya S. Chacar

    (Florida International University, Miami, FL, USA)

  • William Hesterly

    (University of Utah, Salt Lake City, UT, USA)

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    We examine the role of institutional settings in determining rent appropriation by employees. Based on an inductive historical study of owner-player relations in Major League Baseball from the inception of professional baseball to the present, we show that both formal and informal institutional rules can dramatically influence rent appropriation. We draw upon anthropology research on social relations to understand how differences in informal norms regarding the social relations between the owners and the players affect appropriation. Our findings show that when social relations are defined by authority ranking, pay is determined more by fiat than by market forces or bargaining. Copyright © 2008 John Wiley & Sons, Ltd.

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    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 29 (2008)
    Issue (Month): 2-3 ()
    Pages: 117-136

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    Handle: RePEc:wly:mgtdec:v:29:y:2008:i:2-3:p:117-136
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    1. Groshen, Erica L, 1991. "Sources of Intra-industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 869-84, August.
    2. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-30, December.
    3. Blass, Asher A, 1992. "Does the Baseball Labor Market Contradict the Human Capital Model of Investment?," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 261-68, May.
    4. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. John M. Abowd & Michael Bognanno, 1995. "International Differences in Executive and Managerial Compensation," NBER Chapters, in: Differences and Changes in Wage Structures, pages 67-104 National Bureau of Economic Research, Inc.
    7. Krautmann, Anthony C, 1999. "What's Wrong with Scully-Estimates of a Player's Marginal Revenue Product," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 369-81, April.
    8. Castanias, Richard P. & Helfat, Constance E., 1992. "Managerial and windfall rents in the market for corporate control," Journal of Economic Behavior & Organization, Elsevier, vol. 18(2), pages 153-184, July.
    9. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    10. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," CEPR Discussion Papers 3558, C.E.P.R. Discussion Papers.
    11. Jay B. Barney, 1986. "Strategic Factor Markets: Expectations, Luck, and Business Strategy," Management Science, INFORMS, vol. 32(10), pages 1231-1241, October.
    12. Geoffrey M. Hodgson, 1998. "The Approach of Institutional Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 166-192, March.
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