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The Causes of Bargaining Failure: Evidence from Major League Baseball

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  • Farmer, Amy
  • Pecorino, Paul
  • Stango, Victor

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.

Suggested Citation

  • Farmer, Amy & Pecorino, Paul & Stango, Victor, 2004. "The Causes of Bargaining Failure: Evidence from Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 543-568, October.
    • Handle: RePEc:ucp:jlawec:y:2004:v:47:i:2:p:543-68
    DOI: 10.1086/422981
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    Cited by:

    1. Marselli, Riccardo & McCannon, Bryan C. & Vannini, Marco, 2015. "Bargaining in the shadow of arbitration," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 356-368.
    2. David Dickinson, 2009. "The Effects of Beliefs Versus Risk Attitude on Bargaining Outcomes," Theory and Decision, Springer, vol. 66(1), pages 69-101, January.
    3. David S. Kaplan & Joyce Sadka & Jorge Luis Silva‐Mendez, 2008. "Litigation and Settlement: New Evidence from Labor Courts in Mexico," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 5(2), pages 309-350, June.
    4. Sean P. Sullivan, 2016. "Why Wait to Settle? An Experimental Test of the Asymmetric-Information Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 497-525.
    5. Andrea Gallice, 2012. "Strategic Announcements of Reference Points in Disputes and Litigations," Working papers 003, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    6. Farmer, Amy & Pecorino, Paul, 2022. "Discovery in a screening model of final offer arbitration," International Review of Law and Economics, Elsevier, vol. 69(C).
    7. J. Richard Hill & Nicholas A. Jolly, 2014. "Negotiated Settlement Under Mlb Final-Offer Salary Arbitration System," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 533-543, April.
    8. Dickinson, David L., 2006. "The chilling effect of optimism: The case of final-offer arbitration," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 17-30, February.
    9. Andrea Gallice, 2020. "Self-Serving Biased Reference Points in Bankruptcy Problems," Working papers 067, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    10. Cary Deck & Amy Farmer & Dao-Zhi Zeng, 2007. "Amended final-offer arbitration over an uncertain value: A comparison with CA and FOA," Experimental Economics, Springer;Economic Science Association, vol. 10(4), pages 439-454, December.
    11. Farmer, Amy & Pecorino, Paul, 2024. "Proposal convergence and settlement under final offer arbitration," International Review of Law and Economics, Elsevier, vol. 77(C).

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