Chapter 21, Playersâ•Ž Unions and Collective Bargaining Video Solutions, Sports economics

Problem 1

Because neither management nor the player is penalized for losing the arbitration, there is an incentive for management to make unrealistically low final offers and for the player to make outrageous demands. True or false? Explain.

Jiapeng Guo

Numerade Educator

Problem 2

If the player and management are risk averse, will settlements be more or less likely than when they are risk neutral? Explain.

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Problem 3

If the player and management are risk lovers, does the settlement range expand or shrink relative to the case when both are risk neutral? Explain.

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01:08

Problem 4

Suppose that the difference in offers is $$\$ 1$$ million and the player believes that his probability of winning is 0.90 . The player's arbitration costs are $$\$ 100,000$$. Management believes that the player's probability of winning is only 0.60 . Management's arbitration costs are also $$\$ 100,000$$.
a. Assuming no settlement costs, will there be a settlement in this case?
b. If $R_p=R_M=\$ 30,000$, would there be a settlement?

James Macpherson

Numerade Educator

00:51

Problem 5

"As a general proposition, the larger the difference between the final offers, the less likely that the parties will settle." True or false? Explain.

Pammi Eswari

Numerade Educator

02:09

Problem 6

Slugger Sam's final offer was $$\$ 7.5$$ million, but the Hogtown Hens offered $$\$ 5.5$$ million. Sam is pretty confident he will win and thinks that the probability of his winning is 0.85 . The Hens think that their chances of winning are only 0.30 . Sam's arbitration costs are $$\$ 50,000$$, whereas the Hens' arbitration costs are $$\$ 75,000$$.
a. What is the expected value of arbitration to Sam?
b. What is the expected value to the Hens?
c. Will they settle? Explain.
d. Suppose the Hens' final offer had been $$\$ 6.5$$ million. Answer questions (a)-(c) under that assumption.

Breanna Ollech

Numerade Educator

02:55

Problem 7

During the 2006 season, Carlos Zambrano compiled a $16-7$ record with the Chicago Cubs. Eligible for arbitration, he asked for $$\$ 15.5$$ million for the 2007 season. The Cubs offered $\$ 11,025,000$. Explain why Zambrano and the Cubs settled before the arbitration panel settled it for them.

John Long

Numerade Educator

01:08

Problem 8

Adam Dunn and the Cincinnati Reds were scheduled for an arbitration hearing but agreed at the last minute on a two-year deal that would pay Dunn $$\$ 7.5$$ million for 2006 and $$\$ 11.0$$ million for 2007. The Club has an option for the 2008 season at $$\$ 13$$ million. If it does not exercise the option, it must pay Dunn $$\$ 500,000$$. If the probability that the option will be exercised is .75 and the discount rate is 10 percent, what is the value of the contract?

Angela Guo

Numerade Educator