The Moneyball Anomaly and Payroll Efficiency: A Further Investigation

Jahn Hakes () and Raymond Sauer
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Jahn Hakes: Albion College

International Journal of Sport Finance, 2007, vol. 2, issue 4, 177-189

Abstract: In our 2006 paper, we examined the implications of Michael Lewis’ book for the labor market in Major League Baseball. Our tests provided econometric support for Lewis’ claim of mis-pricing in the baseball labor market’s valuation of batting skills. We also found suggestive evidence that the dispersion of statistical knowledge throughout baseball organizations was associated with a sharp attenuation of the mis-pricing. This paper takes a closer look at the economic issues raised by Lewis for the baseball labor market. We extend the sample both backward and forward in time, seeking to determine how long the pricing anomaly existed, and whether the recent attenuation in the anomaly is robust to new observations. In addition, we refine the measures of skill used in our tests to more closely match the narrative account in Lewis’ book. Using both our earlier and refined measures, we find that the pricing anomaly extends well before the period described in Moneyball, and that with some important caveats, the market correction in the post-Moneyball period persists. Finally, improvements in personnel management associated with a closer link between pay and performance may be responsible for the sharply increased correlation between winning percentage and payroll in recent years.

Keywords: market dynamics and equilibrium; baseball salaries; pay and productivity; managerial cost-effectiveness (search for similar items in EconPapers)
JEL-codes: L83 (search for similar items in EconPapers)
Date: 2007
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International Journal of Sport Finance is currently edited by Arne Feddersen, Babatunde Buraimo, Joachim Prinz and Jane Ruseski

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