Leveling the Playing Field or Just Lowering Salaries? The Effects of Redistribution in Baseball

In an attempt to even the playing field, Major League Baseball has considered a number of different redistribution programs. To successfully address the problem of imbalance in the league, redistribution must affect teams' marginal revenue functions. Previous theoretical work has shown that efforts to redistribute revenues from rich to poor teams will lower the marginal value of winning of all teams, thus reducing the payments to labor. But it remains an empirical question as to whether the net effects of such programs have improved balance. In this paper we provide an empirical assessment of whether redistributive efforts between 1996 and 2001 succeeded in reallocating talent to less advantaged teams by estimating the effect of redistribution on the marginal revenue functions of small- and large-market teams. Our results indicate that redistribution lowered salaries by approximately 22% without affecting league balance.