Arbitration versus negotiation: the risk aversion of players

Abstract

This paper explores the effects that skill and experience have on a baseball player's decision about whether to negotiate with his team or to enter into arbitration. The action taken by players who are eligible to file depends on their perceived trade-off between various types of risk such as the possibility of injury and the risks inherent in the arbitration process. Experience increases the chance that a player will go through arbitration, a high skill level decreases that chance, and a large spread between offered and desired salaries makes a negotiated solution more likely.