Research Papers

Michael J. Hasday, Lecturer, DeSales University

MLB uses final offer arbitration (FOA) to set the salaries of certain players.  In FOA, the team and the player each submits a salary number, and the arbitrator (in MLB’s case, a panel of three arbitrators) is required to select one of the numbers as the award.  The rationale for FOA is that it incentivizes each party to submit a reasonable number so that it will be selected by the arbitrator, and if the submitted numbers are closer, settlement is more likely.

Although FOA has historically worked well in MLB, players have been critical of the process in recent years as teams have gained the upper hand.  The problem is that FOA results in too much variance in the awards.  This high variance disadvantages players, who are less willing than teams to take risk.  

I propose variations of FOA, modeled after the “Running it Twice” poker procedure, that help level the playing field by greatly decreasing the variance in the awards.  Double-Header Baseball Arbitration plays out like regular FOA, except that two arbitrators independently decide which of the parties’ numbers to award.  If both agree on a number, then that is the award.  If they disagree, then the award is the midway point between the two parties’ numbers.  In another variation, Triple-Header Baseball Arbitration, three arbitrators independently decide.  If all three agree on a number, then that is the award; but, if the arbitrators split 2-1, the award is set at the applicable two-thirds point between the parties’ numbers.