Baseball Economics: Current Research

By John Fizel; Elizabeth Gustafson et al. | Go to book overview

the F-statistics for the hitters' and pitchers' models are 1.25 and 1.80, respectively. Thus, the hypothesis that the arbitration-eligible dummy and interaction terms are equal to zero cannot be rejected at the 1% level. Hence, one can conclude that after controlling for experience, the relative weights placed on exogenous factors in the two groups are comparable. 6


CONCLUSION

The purpose of baseball's salary arbitration is to create an incentive for players and clubs to negotiate. Because negotiated and arbitrated settlements will be driven by the preferences of the arbitrators, it is important that the source of these preferences be investigated. Theory suggests that the arbitrators' notions of fairness will be largely based on the parties' own fairness assessments. Thus, given that baseball's collective bargaining agreement directs arbitrators to utilize comparative salaries in rendering decisions, it is likely that arbitrators would use the free agent salary determination model to infer fairness.

This study suggests that arbitrators try to replicate salary determination in the free agent market. However, they also have incorporated an experience factor, separate from performance, into their preferences. Thus, a first-year eligible player cannot expect to earn as much as a free agent with identical performance statistics. Given the well-documented gap between ineligible and free agent salaries, the experience factor may reflect an effort by arbitrators to compromise between the union's desire to accelerate salary growth and management's wish to restrain it.


NOTES
1.
Since 1990, arbitration eligibility is determined in the following manner: all players with at least three years of major league service are eligible. In addition, of those players with between two and three years of service who spent at least half of the prior season on the major league roster, the 17% with the most cumulative service are also eligible for salary arbitration.
2.
For details on the impact of salary arbitration in reducing monopsonistic exploitation in baseball, see Burgess and Marburger ( 1992), Kahn ( 1993b), Zimbalist ( 1992a), and Marburger ( 1994).
3.
Over 90% of the eligible players in this study chose to negotiate their settlements.
4.
The Basic Agreement requests that, except in the cases of arbitrating players with five years of experience, arbitrators pay particular attention to the salaries of players whose service exceeds that of the arbitrating player by one year. However, player representatives are free to compare the merits of the arbitrating player with players whose service exceeds the one-year limit; arbitrators are also permitted to use these comparisons in determining settlements.
5.
USA Today lists the entire population of major league salaries for each club's opening day roster and for the club's roster on August 31 of each year. The latter listing also includes all bonuses earned by a player.

-74-

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