Date of Award

January 2016

Document Type

Thesis

Degree Name

Master of Science (MS)

Department

Economics & Finance

First Advisor

Daniel Biederman

Abstract

The Major League Baseball draft is virtually the only means by which US and US territory born players have access to becoming major league baseball players. As a condition of their initial contracts, players are subjected to initial contract terms, that limit their traditional free market ability to earn a salary commensurate with their actual worth. This research attempts to quantify the difference between what players would earn on the open market, as free agents, and what they earn by being controlled by baseball’s reserve clause, by analyzing the current compensation system established by Major League Baseball, how drafted players have limited leverage in negotiations, and whether their compensation approximates actual provided value. The result of this analysis is clear that players on their initial contracts over perform relative to their compensation, relative to players who signed open-market contracts.

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