Per-unit versus ad-valorem discrimination with an application to MLB

Paul Holmes and Robert Kane

Applied Economics Letters, 2017, vol. 24, issue 18, 1335-1339

Abstract: We contrast two structural forms of discrimination: per-unit and ad-valorem. We provide a simple modification to Becker’s canonical discrimination model allowing for heterogeneous worker quality and both per-unit and ad-valorem discrimination. Per-unit discrimination costs reduce the relative cost of minorities with higher marginal products. This simple insight, which builds upon the Alchian–Allen hypothesis, yields sharp testable implications. We argue that several features of the MLB labour market are consistent with per-unit discrimination.

Date: 2017
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DOI: 10.1080/13504851.2016.1276265

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