Location

Jereld R. Nicholson Library: Grand Avenue

Subject Area

Economics

Description

This study estimates the effect of player performance on free agency contract values in Major League Baseball (MLB). We hypothesize that performance, as measured by Wins Above Replacement (WAR), has a positive effect on the contract value. To test this, we specify and estimate a linear regression for contract value as a function of current and lagged WAR values and other control variables. Using data from 82 major league position players during the 2013 and 2014 seasons, our results indicate that the current and lagged values of WAR have a significant, positive effect on contract value. Among the control variables, the contract length has a significant, positive effect on the contract value. The model is used to predict free agent contract values set during the 2015 off-season. This prediction for 25 players has an average error of 35%, without systematic over-or under-prediction.

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The Effect of Player Performance on Free Agency Contract Value in Major League Baseball

Jereld R. Nicholson Library: Grand Avenue

This study estimates the effect of player performance on free agency contract values in Major League Baseball (MLB). We hypothesize that performance, as measured by Wins Above Replacement (WAR), has a positive effect on the contract value. To test this, we specify and estimate a linear regression for contract value as a function of current and lagged WAR values and other control variables. Using data from 82 major league position players during the 2013 and 2014 seasons, our results indicate that the current and lagged values of WAR have a significant, positive effect on contract value. Among the control variables, the contract length has a significant, positive effect on the contract value. The model is used to predict free agent contract values set during the 2015 off-season. This prediction for 25 players has an average error of 35%, without systematic over-or under-prediction.

 

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