are major league baseball players psi their marginal revenue product?

Open Access
Author:
Schanzenbach, Brian James
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Edward Coulson, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
  • Russell Paul Chuderewicz, Faculty Reader
Keywords:
  • marginal revenue product
  • baseball
  • MLB
  • economics
  • sports
  • MRP
Abstract:
This thesis studies whether Major League Baseball players are paid their marginal revenue product. In other words, the goal is to determine whether the players are paid the amount of money they make for their franchise. Major League Baseball wants a competitive league because a competitively balanced league makes the most amount of money. In order to have a competitively balanced league, the players must be paid their marginal revenue product. Thus, it is in the league’s best interest for the players to receive their marginal revenue product as compensation. In order to calculate the marginal revenue product, I ran winning regressions and attendance regressions. The winning regressions calculated what factors into a team’s winning percentage, while the attendance regressions calculated what factors into attendance at a ball game. The winning regressions gave me the marginal product and the attendance regressions gave me the marginal revenue. I was then able to calculate the marginal revenue product, as it is simply the marginal revenue multiplied by the marginal product. The next step was to regress the player salary on MRP, so that I could determine whether players are paid their marginal revenue product. I found that, on average, all Major League Baseball players are underpaid. Therefore, my recommendation to the league would be to increase the average salaries of each position accordingly to create a more competitively balanced league.