Publication: Journal of Sports Economics
Publication Date: 2006
The Coase theorem suggests that under certain conditions, the distribution of player talent should be similar before and after free agency. Previous attempts to test the theory’s applicability to major league baseball were either examinations of win-loss distributions or comparisons of player movements before and after free agency. These approaches have significant drawbacks. Did the same teams sport winning records over an extended period before and after free agency? Franchise relocations and implementation of a draft of amateur players should have also affected player movement patterns and distributions of win-loss records. American League teams had changes in their win-loss records that do not fully correspond to the theory’s predictions, raising questions of what transaction costs might have impeded transferring players. Teams in smaller towns tended to lose talent to teams in larger cities; the flow of talent was roughly similar between periods.