Are voluntary agreements better? Evidence from baseball arbitration

Abstract

This study empirically examines the widespread belief that voluntarily negotiated agreements produce better long-run relationships than do third-party imposed resolutions, such as arbitrator decisions or court judgments. Major League Baseball provides a compelling setting for these analyses because individual performance is well measured, there is the possibility of relationship breakdown, and both voluntary and arbitrator-imposed resolutions routinely occur. Two key outcomes are analyzed: post-resolution player performance and the durability of the club-player relationship. Multivariate analyses of 1,424 salary renegotiations fail to find significant differences in subsequent player performance, but voluntary resolutions are associated with more durable post-resolution club-player relationships.