Baseball Economics: Current Research

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

of the arbitration bias is reflective of different risk preferences for blacks and Latins relative to whites. Salary demands of blacks tend to be more conservative and salary demands of Latins equal to the salary demands of whites. Based on this data blacks would have higher, not lower, chances of winning an arbitration case. Because baseball arbitrators are not permitted to furnish reports on their decisions, it is not possible to discern if arbitrators are even cognizant of this bias. In addition, neither the MLBPA nor the PRC would release data on the individual arbitrators assigned to each case. Thus it is not clear whether the bias is industry-wide or generated from the opinions of just one or a few arbitrators. Arbitration bias could also be the result of omitted variable bias. This is unlikely, given the number of player and team performance characteristics included in the estimation process. Also, the results were robust over alternative model specifications


NOTES
1.
The minimum experience requirement for arbitration was actually two years beginning in 1974, changing to three years in 1987, then to 17% of the players with between two and three years experience in 1991.
2.
Farber ( 1980) and Ashenfelter and Bloom ( 1984) provide the theoretical foundation for this model. Farber and Bazerman ( 1986) provide simulation results that are consistent with this decision rule. Also, Sample ( 1992) suggests that players and agents appear to believe that this is the process arbitrators follow in making their decisions.
3.
The probit model is associated with a standardized cumulative normal distribution. This distribution ranges from -∞ to + ⋡, with a mean of 0 and a variance of 1. The probability of an owner winning the arbitration case is measured in this instance by the area under the standard normal curve, from ∞ to θ. One-half of the area under the standard normal curve or a probability of 50%, will occur when θ equals the mean or when θ = 0. If θ > 0 then the probability of the owner winning is greater than 50%, and if θ < 0 then the probability of the owner winning is less than 50% ( Gujarati 1988, pp. 491-95).
4.
In his original development of this model, Dworkin ( 1981, p.170) found that owners would win only 37% of the cases where W* was equidistant from Wp and Wo. It is unclear, however, which years of arbitration were used to estimate this model. Data are provided in his Appendix III for arbitration cases from 1974-1981, but estimates of W* in his Appendix VI are only for the year 1974-1975. Moreover, the study is limited because W* is estimated for a sample of players that extends beyond arbitration-eligible players and ignores key arbitration criteria. Finally, Dworkin does not test for why or when this bias exists.
5.
The F-statistic for the hitter models is 13.04 and for the pitcher models is 21.83. When estimating separate models for each year, the past year's salary variable often captures the effect of past performance variables and was therefore eliminated from the models. Pooled models like Burgess and Marburger ( 1993) and Faurot and McAllister ( 1992) would have reduced this effect but, as stated above, they represent inappropriate specifications.

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