Most economists who have analyzed professional baseball have concluded that two distinctive features of its labor market—the reserve clause and player draft—influence the distribution of wealth between players and owners but do not affect the allocation of playing talent among teams. Such conclusions, which are strongly at variance with laymen's views of such matters, are derived from theoretical considerations rather than empirical examinations. Our paper examines data from the two decades of major league history and concludes that, on the basis of that data, the empirical generalizations of previous economists do not appear to be justified.
The consequence is that, whereas the normal way of testing a theory in positive economics is to test its conclusions, the normal way of testing a welfare proposition is to test its assumptions. The significance of this should not be overlooked. In positive economics we often simplify our assumptions as cavalierly as we please, being confident in the knowledge that their appropriateness will be tested when we come to apply the conclusions inherent in them to our observations of the world about us. In welfare economics we can entertain no such confidence. The result is that our assumptions must be scrutinized with care and thoroughness.
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