Free Agency and Contract Options: How Major League Baseball Teams Value Players
Abstract/Contents
- Abstract
- When evaluating and signing players, Major League Baseball teams face incomplete information regarding a player’s true value. This paper explores how teams deal with such uncertainty and whether their approaches toward high-risk free agent signings and low-risk contract option decisions differ. I use seemingly unrelated regression to estimate the relationships between past performance and future performance and between past performance and free agent salaries. I find that in determining free agent salary offers, teams undervalue past performance relative to its power in predicting future performance. For the low-risk option decisions, I use the Wilcoxon Sum Rank Test and a logit regression to determine that teams are much less cautious and follow no discernible pattern in exercising options. Teams thus use very different approaches in making free agent and contract option decisions.
Description
Type of resource | text |
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Date created | May 2007 |
Creators/Contributors
Author | Dinerstein, Michael | |
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Primary advisor | Hall, Bob | |
Degree granting institution | Stanford University, Department of Economics |
Subjects
Subject | Stanford Department of Economics |
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Subject | sports economics |
Subject | salary determination |
Subject | free agent |
Subject | labor |
Subject | management |
Genre | Thesis |
Bibliographic information
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- Use and reproduction
- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
Preferred citation
- Preferred Citation
- Dinerstein, Michael. (2007). Free Agency and Contract Options: How Major League Baseball Teams Value Players. Stanford Digital Repository. Available at: https://purl.stanford.edu/cp727jr4022
Collection
Stanford University, Department of Economics, Honors Theses
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