Munich Personal RePEc Archive

Marginal revenue product and salaries: Moneyball redux

Rockerbie, Duane W (2010): Marginal revenue product and salaries: Moneyball redux.

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Abstract

Scully (1974) used a two equation regression model to estimate a baseball player’s salary to compare to the actual salary the player earned in order to determine if a player is paid his net marginal revenue product. We replicate the spirit of that paper, but introduce several useful innovations to estimate net marginal revenue products for a large sample of free-agent baseball players. Our results suggest that the highest paid free agents are overpaid, while all other free agents are underpaid or paid appropriately. We found no evidence for the notion that some clubs may be more adept at finding “bargain” free agents.

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