PurposeIn baseball, a run scored on offense carries the same on-field (win) value as does a run prevented on defense. Both outcomes bear the same score margin implication. This presumption of unit equality is implicit in the Wins Above Replacement (WAR) measure, which treats units of offensive WAR (oWAR) and units of defensive WAR (dWAR) as perfectly substitutable toward win production. The purpose of this paper is to ask whether the salaries of Major League Baseball (MLB) players reveal such an equal valuation among MLB teams.Design/methodology/approachThe authors examine the relationship between offensive output, defensive output and subsequent salary from free agency in MLB using a set of log-linear OLS, fixed effects regression specifications.FindingsIn general, estimated annual salary from free agency increases significantly and substantially with unit increases in a player's (prior season) wins above replacement WAR. Across specifications, the authors estimate a 42.5–43.4% increase in salary for year t for each additional unit of WAR in year t−1. The authors disaggregate WAR into offensive and defensive components (oWAR and dWAR) and estimate a 52.4–53.3 (4.8–7.2)% increase in salary for each additional unit of oWAR (dWAR).Originality/valueThe efficiency of the baseball labor market has been studied previously with mixed results. The novelty of the present study is its treatment of inputs not as positions or individual players but as the underlying offensive and defensive win production of players. The authors estimate free agency salary returns to (contract season) oWAR and dWAR in MLB to establish whether (to what extent) a salary premium for offensive output exists within MLB.
asked 199 professional economists a multiple‐choice question about opportunity cost. Given that only 21.6% answered “correctly,” they conclude that professional understanding of the concept is “dismal.” We challenge this critique of the profession. Specifically, we allow for alternative opportunity cost accounting methodologies—one of which is derived from the term's definition as found in Ferraro and Taylor— and rely on the conventional relationship between willingness to pay and substitute goods to demonstrate that every answer to the multiple‐choice question is defensible. The Ferraro and Taylor survey question suggests difficulties in framing an opportunity cost accounting question, as well as a lack of coordination in opportunity cost accounting methodology. In scope and logic, we conclude that the survey question does not, however, succeed in measuring professional understanding of opportunity cost. A discussion follows as to the concept's appropriate role in the classroom.
Purpose-A standard result of firm theory is that a monopoly maximizes profit somewhere along the elastic portion of its demand curve. However, empirical studies of sports ticket pricing routinely find that (home) teams price along the inelastic portion of demand. Despite compelling theoretical explanations of this finding, at least one important factor remains unconsidered. A profit-maximizing team considers not only direct marginal revenue and direct marginal cost when setting a ticket price but also deferred, strategic benefit (revenue) from present game success. The paper aims to discuss these issues. Design/methodology/approach-Prior literature finds that a given win is valued in that it generates additional future revenue and likelihood of home victory rises, ceteris paribus, in crowd density. The authors construct a firm profit maximization problem in which a sports team considers both present and future revenue when pricing home games in the present period. Findings-If the deferred benefit is sufficiently large, a forward-looking, profit-maximizing team prices along the inelastic portion of its static demand curve. Importantly, this same price falls along the elastic portion of the firm's (empirically unobserved) dynamic demand curve. Originality/value-This is the first model of sports ticket pricing to recognize the intertemporal nature of demand for a sports match.
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