Diamonds Are Forever: The Business of Baseball.

• Author: Singell, Larry D., Jr.

The business of baseball changed dramatically in the last two decades: Diamonds are Forever: The Business of Baseball is a collection of scholarly work on the impact of these changes on the game. A combination of theoretical, descriptive, and empirical studies examine four broad issues: (1) the labor market for baseball players; (2) the impact of fans; (3) pay, performance, and competitive balance and; (4) the impact of race on salary. In these areas, the book is largely successful in its stated objective of updating economic analyses of professional sports provided in the volume Government and the Sports Business, edited by Roger G. Noll |1~.

The three papers in Part I examine how operating procedures in major-league baseball can affect the labor market for players. The first paper by George G. Daly describes the potential effects of contracting structure on competitive balance and contest legitimacy. In particular, Rottenberg |2~ proposes that resource allocation is invariant to ownership rights to player services; Daly examines circumstances when this application of the Coase theorem might break down. He argues that prior contractual agreements limiting players' negotiating options with professional sports leagues (e.g., the reserve clause) may be economically efficient because it protects, and thereby encourages, transaction-specific investments. These investments have real effects that can include a larger level of league output, higher-quality athletic performances, enhancement of league legitimacy and competitive balance. A second paper, by Frederick et al., distinguishes empirically between three competing hypotheses of arbitrator behavior in final-offer arbitration. They find that behavior differs for second-time versus first-time participants in salary arbitration; specifically, repeated arbitration narrows the spread between salaries proposed by a player and his team, suggesting that final-offer arbitration converges to the player's "true" market value. The final paper in this chapter by Paul L. Burgess and Daniel R. Marburger estimates the "bargaining-power effect" of arbitration eligibility. By comparing the salaries of arbitration-eligible players with those who are not, they find that hitters, starting pitchers, and relief pitchers obtain, respectively, an 86, 89, and 58 percent salary increase subsequent to eligibility. They conclude that final-offer arbitration serves to encourage negotiations between players and clubs...