Final-offer arbitration in major league baseball: A nonparametric analysis

Abstract

This study extends the non-parametric methodology for empirical efficiency analysis to allow for a double frontier based on perspective and applies the model to final-offer arbitration in major league baseball. Arbitration eligible players perceive their worth relative to other players who earn more with no better performance. Owners, on the other hand, perceive a player's value relative to other players performing as well with lower salaries. The two different perspectives give rise to different perceived frontiers. The purpose of this paper is to analyze arbitration using this approach.