Date of Award

2016

Document Type

Honors Paper

Degree Name

Finance-BA

Department

Business, Accounting, & Economics

Advisor

Candy Sikes, Ph.D

First Committee Member

Kyriacos Aristotelous, Ph.D

Second Committee Member

Meredith Frey, Ph.D

Keywords

Baseball, Marginal Revenue Product, Player Valuation, Salary, MLB

Subject Categories

Finance and Financial Management

Abstract

By using data from the 2014 Major League Baseball season, this paper examines the current market of baseball. I mainly look to offer clarity to the debate questioning if players are paid their marginal revenue product. By using a two-step model, I first estimate the effect team statistics have on team winning percentage, and next how that team winning percentage affects team revenue. After obtaining results from the regressions, I use those calculations in two formulas aimed at quantifying a player’s marginal revenue product. I find that overall, players are paid close to their respective marginal revenue products. An age gap exists, however, where younger players are paid significantly less than their values, while older players are paid in excess of their contributions to the team.

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