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.