Major League Corporate Inefficiency?

Advocates of corporate capitalism never tire of justifying their preferred policies by presuming that corporations are the epitome efficiency. Yet the same corporate leaders typically display highly inefficient behavior when they purchase sports teams. For example, the Journal of Economic Perspectives has an econometric analysis of the Moneyball Hypothesis, a name given to Michael Lewis’s analysis of the way the Oakland A’s win baseball games with a lower budget per victory than other teams. They show that the Oakland Athletics were correct in discarding the standard measures of efficiency and looking. They were able to land on the frontier of efficiency by winning games with the relatively low budget. In particular, the team could win a game spending about a half-million dollars per game, about 1/6 the cost of the least efficient teams.

Hakes, Jahn K. and Raymond D. Sauer. 2006. “An Economic Evaluation of the Moneyball Hypothesis.” Journal of Economic Perspectives, 20: 3 (Summer): pp. 173-85.

Not long ago, Richard Thaler published an article demonstrating the inefficiency in the way NFL teams draft new players. In the course of the article he quotes Lewis:

Massey, Cade and Richard H. Thaler. 2005. “The Loser’s Curse: Overconfidence vs. Market Efficiency in the National Football League Draft.”

Michael Lewis, author of Moneyball, said, “If professional baseball players, whose achievements are endlessly watched, discussed and analyzed by tens of millions of people, can be radically mis-valued, who can’t be? If such a putatively meritocratic culture as professional baseball can be so sloppy and inefficient, what can’t be?” Neyer, R. 2003. Examining the art of evaluating: ESPN.com.

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