Progressive Revenue Sharing in MLB: The Effect on Player Transfers

The 1997 collective bargaining agreement between the Major League Baseball owners and players’ union altered MLB’s system of sharing revenue sharing between clubs. The new system, a convoluted cross-subsidization scheme, by design progressively redistributed income from the highest revenue generating clubs toward the lowest revenue-producing clubs. The 2003 agreement extended this method of revenue redistribution, but with an increased the tax rate and modified process. The purpose of the revenue sharing system was to alleviate a growing disparity in revenue generation, which MLB claimed caused competitive imbalance. We examine progressive revenue sharing theoretically, within the principal-agent framework, and shows that the incentive to divest in talent is increased for lower revenue producing clubs. Empirical results are supportive. Payroll disparity and competitive imbalance increased modestly from the period immediately preceding implementation. Most striking however is the alteration in transfer rates of players, in particular the increased flow of productive talent away from the lowest revenue clubs. We show conclusively that low revenue producing clubs acted on the increased incentives to divest in talent.Sport, revenue redistribution, collective bargaining

Faculty Productivity, Seniority, and Salary Compression

For decades, many senior professors have noticed that the earnings of entry-level faculty are often very close to, or greater than their own. This trend in faculty life-cycle earnings can be illustrated by the 1998 salary and seniority data obtained from a public, liberal arts college (PLAC) that are reported in Table 1. Salary compression is evidenced by the narrow earnings difference ($2,300) between the highest-paid assistant professor and the lowest-paid full professor in this department. Salary inversion can be illustrated by differences in the averages, or in the range of salaries between assistant and associate professors. For example, the average assistant professor in Department X earns approximately$200 more than the average associate professor. Also, the highest paid assistant in this department earns $2,000 more than the highest-paid associate. These data indicate a U-shaped wage-tenure profile. Such a profile suggests that faculty with low levels of seniority can expect their earnings to fall, or invert, relative to the salaries of new hires as their careers unfold at this institution. Similarly, the earnings gap between new hires and faculty with high levels of seniority will compress over time.Productivity; Salary; Seniority

The Effectiveness of Incentive Mechanisms in Major League Baseball

Past work on principal-agent problems in sports does not effectively compare among players. The comparison must be made between players nearing contract negotiations and other players to detect ex ante strategic behavior (turning up performance just prior to contract negotiations) and ex post shirking (slacking off after signing the contract). The authors' productivity measures include statistics reflecting both the player's desire (or availability) to play as well as his performance once he enters a game. The data reject strategic performance. This suggests that mechanisms aimed at curbing strategic performance by players appear to be working well. However, pitchers with nagging injuries may be more likely to be placed on the disabled list while under long-term contracts. This may imply strategic behavior or, conversely, that clubs are choosing to protect an investment. A performance measure used to test for shirking affects some results but not the ultimate conclusions.Sports, Contracts, Incentives