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Article
The Causes of Bargaining Failure: Evidence from Major League Baseball
Journal of Law and Economics (2004)
  • Amy Farmer
  • Paul Pecorino, University of Alabama
  • Victor Stango, University of California - Davis
Abstract

Final‐offer arbitration in Major League Baseball provides an ideal setting for examining the empirical regularities that are associated with bargaining failure, since final offers, salaries, and player statistics, which provide the fundamental facts for the case, are all readily available. Using data for players eligible for arbitration for 1990–93, we conduct a wide variety of empirical tests regarding the relationship between aggressive offers and arbitration outcomes. We find that aggressive offers by players trigger arbitration and that more aggressive offers are associated with inferior financial outcomes in arbitration. Overall, clubs appear to outperform players in arbitration. Unexpectedly high or low offers are less common for players who have previously been through arbitration, which suggests that learning occurs. Our results are inconsistent with simple one‐sided asymmetric‐information models of arbitration. The results are more consistent with an optimism model or a model in which some players are risk loving.

Keywords
  • Final Offer Arbitration,
  • Bargaining,
  • Asymmetric Information,
  • Major League Baseball
Disciplines
Publication Date
October, 2004
Citation Information
Amy Farmer, Paul Pecorino and Victor Stango. "The Causes of Bargaining Failure: Evidence from Major League Baseball" Journal of Law and Economics Vol. 47 (2004)
Available at: http://works.bepress.com/paul_pecorino/29/