Major League Baseball’s (MLB) Draft is a natural laboratory for the study of bargaining: There are no bonus restrictions, draft picks cannot be traded, and there are no commitment issues (i.e., players “declaring” for the draft). This article tests the implications of bargaining theory using data from the 2003-2010 MLB drafts. In 2007, new draft rules were introduced, but not uniformly across the draft, making it possible to estimate the effect of each change. Although the rule changes were designed to lower bonuses, they had the opposite effect. The rule changes led to $178 million in extra compensation to drafted players.
