What's Wrong With Scully‐estimates of a Player's Marginal Revenue Product

Estimates of baseball players' marginal revenue product, derived from the methodology introduced by Gerald Scully over twenty years ago in the American Economic Review, suggest that even the highest-paid players are grossly underpaid. But, given the fiercely competitive bidding process for free agents, it is hard to believe that owners can maintain salaries significantly below marginal revenue product. In this paper, an alternative approach for estimating a player's economic value is proposed. It uses market information gleaned from free agent contract negotiations. When applied to the less-mobile segment of the player market, this method yields much more reasonable estimates of players' marginal revenue products.