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The Introduction of the Reserve Clause in Major League Baseball: Evidence of its Impact on Select Player Salaries During the 1880s

Author

Listed:
  • Jennifer K. Ashcraft

    () (Burlington Northern-Santa Fe Railway Company)

  • Craig A. Depken, II

    () (Department of Economics, University of Texas at Arlington)

Abstract

This paper investigates the introduction of the reserve clause in Major League Baseball during the 1880s. Taking advantage of a unique data set describing the salaries for twenty nine high-quality players throughout the decade of the 1880s, we investigate the impact of the reserve clause as it evolved from a "gentleman's agreement" to a formal contract stipulation. We test three specific hypotheses concerning the reserve clause: its effect on average salaries, on the remuneration to marginal product, and the premium paid to a player for changing teams. The evidence suggests that introducing the reserve clause reduced average salaries and the premium for changing teams; detectable monopsony power was transferred to team owners almost immediately. However, there was no statistically significant impact of the reserve clause on how much players were paid for their marginal product. The empirical results indicate that reserve clause shifted considerable monopsony power to team owners immediately after it was instituted.

Suggested Citation

  • Jennifer K. Ashcraft & Craig A. Depken, II, 2007. "The Introduction of the Reserve Clause in Major League Baseball: Evidence of its Impact on Select Player Salaries During the 1880s," Working Papers 0710, International Association of Sports Economists;North American Association of Sports Economists.
  • Handle: RePEc:spe:wpaper:0710
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    File URL: http://web.holycross.edu/RePEc/spe/AshcraftDepken_ReserveClause.pdf
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    References listed on IDEAS

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    1. 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 369-381, April.
    2. Craig Depken, 1999. "Free-Agency and the Competitiveness of Major League Baseball," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 205-217, May.
    3. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-930, December.
    4. Simon Rottenberg, 1956. "The Baseball Players' Labor Market," Journal of Political Economy, University of Chicago Press, vol. 64, pages 242-242.
    5. James R. Chelius & James B. Dworkin, 1980. "An Economic Analysis of Final-Offer Arbitration as a Conflict Resolution Device," Journal of Conflict Resolution, Peace Science Society (International), vol. 24(2), pages 293-310, June.
    6. 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.
    7. Joel G. Maxcy, 2002. "Rethinking Restrictions On Player Mobility In Major League Baseball," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 145-159, April.
    8. Eckard, E Woodrow, 2001. "Free Agency, Competitive Balance, and Diminishing Returns to Pennant Contention," Economic Inquiry, Western Economic Association International, vol. 39(3), pages 430-443, July.
    9. Paul M. Sommers & Noel Quinton, 1982. "Pay and Performance in Major League Baseball: The Case of the First Family of Free Agents," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 426-436.
    10. Craig A. Depken II, 2002. "Free Agency and the Concentration of Player Talent in Major League Baseball," Journal of Sports Economics, , vol. 3(4), pages 335-353, November.
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    1. repec:eee:exehis:v:65:y:2017:i:c:p:55-67 is not listed on IDEAS

    More about this item

    Keywords

    Sports economics; monopsony; free agency; negotiation;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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