The Wall Street Journal is running another chapter in its free Econoblog series, and the current installment pits the original Sports Economist Skip Sauer against Sabernomics‘ John-Charles Bradbury discussing the free agent market in Major League Baseball this winter. Among the many interesting observations from these two sharp experts on the economics of baseball is the following from Professor Sauer on the super-heated free agent market for relief pitchers:

[T]his is the year of the reliever in the free-agent market. And if their contracts are anywhere near full value, that is one heck of an interesting observation. Why, you ask? Because it debunks an age-old claim that is inconsistent with economic analysis. The claim dates back to the origin of free agency, via arbitrator Peter Seitz’s decision in the McNally-Messersmith case (like the arbitrator in the recent Terrell Owens case, Seitz was abruptly fired, in his case by the owners). After Seitz’s decision, the owners and players both feared for the worst should full-blown free agency emerge in baseball’s marketplace. They proceeded to negotiate a collective-bargaining agreement which protected owners’ interests (by giving young players limited bargaining power), along with the interests of journeymen, allegedly, by limiting the supply of free agents.

Ever since, we have lived with this notion that an increased supply of free agents would reduce the value of player contracts. But it’s not that simple. If I have a youngster with decent upside and a modest contract, my willingness to spend big money for a journeyman free agent is sharply reduced. And to the extent that my endowment of a youngster is moot (let all players be up for grabs through trades between teams, or all players be free agents), the Rottenberg-Coase theorem applies: Competition in the labor market would force teams to pay the full measure of what players are worth to them. Under no circumstances would they pay more than that, so can limiting the number of free agents increase their value on the market? Answer: It doesn’t, at least in theory.
But there is always that chance that an economic model is wrong, so it is important that we test it. This year’s large number of relievers on the free-agent market lets us do that. According to the age-old claim, this should have a negative impact on their salary. But we aren’t seeing that — if anything, their contracts look relatively generous. Thus, to an economist, this year’s market is an especially interesting one. It refutes the age-old claim, and supports an alternative: old-fashioned economic theory. Make the score economics 1, age-old baseball canard 0.

Read the entire interesting discussion. Meanwhile, in other baseball news, it’s looking increasingly as if the Stros’ future Hall-of-Famer Jeff Bagwell is going to give the 2006 season a go even with his chronically arthritic right shoulder.