Are baseball players paid their marginal products?

Abstract

Abstract Previous researchers found that baseball players under the reserve clause had been paid considerably less than their contributions to club revenues. We ask, has the new contractual system of free agency and final‐offer arbitration brought baseball salaries into line with marginal revenue products? Using public data for the 1986 and 1987 seasons, our basic answer is yes, major league salaries generally coincide with estimated marginal revenue products, though significant deviations exist. Experienced players are paid in accord with their productivity; young players, however, are paid less than their marginal revenue product, on average. This result is closely related to the market structure within baseball.

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