Talent ends up at the clubs that value it most, whichever way the rules assign the initial rights to a player.
Rottenberg argued in the Journal of Political Economy in 1956 that baseball's reserve clause distributed players among teams about as a free market would, because a club that values a player less will sell him to one that values him more. The general result is now known by Coase's name, and sports economists have objected to the demotion for fifty years.
In practice
- A draft intended to spread talent is followed by trades that undo it.
- A transfer restriction changes who is paid rather than who plays.
- Possible explanations
- The explanation is that a club values a player by what he adds to its revenue, so whoever holds the initial right, the club or the player, the player ends up where that value is highest, with the rule determining who is paid rather than where talent goes.
- In its favour
- It anticipated the Coase theorem by four years, and the broad pattern after free agency, with talent distribution changing less than predicted, is consistent with it.
- Against it
- Transaction costs, payroll rules, and the fact that clubs differ in their ability to borrow all break the equivalence, and later work finds that the assignment of rights does affect where players end up.
- Standing
- Stated four years before Coase's 1960 paper and often absorbed into it, though the two differ: under Rottenberg the parties to the bargain change with the rule, and under Coase they do not. Empirical support is mixed.
- Subject
- Sport & Performance
- Essay
- The best-measured contests there are