LABOR ECONOMICS LL W/ ACCESS >IC<
7th Edition
ISBN: 9781260144772
Author: BORJAS
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 10, Problem 14P
Major League Baseball players are not eligible for arbitration or free agency until they have been in the league for several years. During these “restricted” years, a player can only negotiate with his current team. Consider a small-market team that happens to own the rights to last year’s Rookie-of-the-Year. This player is currently under contract for $500,000 for the next 3 years. Because his current team is in a small market, the player’s value to his current team is $6 million per year (now and in the future) When the player becomes eligible for free agency, he will likely command $10 million per year for 7 years in free agency from competing large-market teams. In the questions below, assume the player wants to maximize his lifetime earnings.
- (a) What is the worst 10-year contract extension from the player’s point of view that the player would accept from his current team?
- (b) What is the best 10-year contract extension from the player’s point of view that his current team would offer him?
- (c) Would you expect this player to sign a contract extension or to play out his contract and enter free agency 3 years from now?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If you did worng i will report!!
The owner of the Jets is going to offer a contract to a free agent player, Hapoleon. If signed, Hapoleon can give the Jets high effort or low effort. High effort costs Hapoleon $2 million and low effort costs Hapoleon nothing. The Jets’ owner cannot observe Hapoleon’s effort directly.
Hapoleon has a guaranteed offer of $10 million from another team, the Sharks. If Hapoleon signs with the Jets, the team can be profitable or not and the Jets’ owner can observe that.
If Hapoleon gives high effort, then the probability the Jets are profitable is 80 percent, but if Hapoleon gives low effort, then the probability the Jets are profitable is 40 percent.
Hapoleon is the typical risk neutral player and his utility is given by u w() = w .
Calculate the optimal wage levels, wH and wL , that the Jets’ owner should offer Hapoleon to get him to sign with the Jets and give high effort if Hapoleon’s disutility from high effort increases to $3 million.
Determine the optimal wage levels, wH and wL ,…
The owner of the Jets is going to offer a contract to a free agent player, Hapoleon. If signed, Hapoleon can give the Jets high effort or low effort. High effort costs Hapoleon $2 million and low effort costs Hapoleon nothing. The Jets’ owner cannot observe Hapoleon’s effort directly.Hapoleon has a guaranteed offer of $10 million from another team, the Sharks. If Hapoleon signs with the Jets, the team can be profitable or not and the Jets’ owner can observe that.If Hapoleon gives high effort, then the probability the Jets are profitable is 80 percent, but if Hapoleon gives low effort, then the probability the Jets are profitable is 40 percent.Hapoleon is the typical risk neutral player and his utility is given by u w() = w .
a. If effort were observable, describe the contingent contract the Jets’ owner should offer Hapoleon.As already stated, effort is not observable. The Jets’ owner is optimistic that he can sign Hapoleon.
b.Calculate Hapoleon’s expected payoff if he signs with the…
Chapter 10 Solutions
LABOR ECONOMICS LL W/ ACCESS >IC<
Ch. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prob. 11RQCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Major League Baseball players are not eligible for...Ch. 10 - Prob. 15P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- The owner of the Jets is going to offer a contract to a free agent player, Hapoleon. If signed, Hapoleon can give the Jets high effort or low effort. High effort costs Hapoleon $2 million and low effort costs Hapoleon nothing. The Jets’ owner cannot observe Hapoleon’s effort directly. Hapoleon has a guaranteed offer of $10 million from another team, the Sharks. If Hapoleon signs with the Jets, the team can be profitable or not and the Jets’ owner can observe that. If Hapoleon gives high effort, then the probability the Jets are profitable is 80 percent, but if Hapoleon gives low effort, then the probability the Jets are profitable is 40 percent. Hapoleon is the typical risk neutral player and his utility is given by u w() = w . Calculate the optimal wage levels, wH and wL , that the Jets’ owner should offer Hapoleon to get him to sign with the Jets and give high effort if Hapoleon’s disutility from high effort increases to $3 million. Determine the optimal wage levels, wH and wL ,…arrow_forwardThe owner of the Jets is going to offer a contract to a free agent player, Hapoleon. If signed, Hapoleon can give the Jets high effort or low effort. High effort costs Hapoleon $2 million and low effort costs Hapoleon nothing. The Jets’ owner cannot observe Hapoleon’s effort directly. Hapoleon has a guaranteed offer of $10 million from another team, the Sharks. If Hapoleon signs with the Jets, the team can be profitable or not and the Jets’ owner can observe that. If Hapoleon gives high effort, then the probability the Jets are profitable is 80 percent, but if Hapoleon gives low effort, then the probability the Jets are profitable is 40 percent. Hapoleon is the typical risk neutral player and his utility is given by u w() = w . Calculate the optimal wage levels, wH and wL , that the Jets’ owner should offer Hapoleon to get him to sign with the Jets and give high effort if Hapoleon’s disutility from high effort increases to $3 million.arrow_forwardhow do you do you find the expected payback for this problem? Find the expected payback for a game in which you bet $1010 on any number from 00 to 399.399. If your number comes up, you get $400400.arrow_forward
- Can sports betting be an occupation? How is sports gambling different than other forms of gambling?arrow_forwardTy-ped and correct answer please. Iarrow_forwardWhat is the present value of a $10,000 prize you expect to receive in 9 years? You require an 8 percent discount rate. Write your answer out to two decimal places Amount per paymentarrow_forward
- What do you do when you’re faced with an opportunity to lie, cheat or steal forthe betterment of yourself/ or a promotion from a job?arrow_forward1 . Individual Problems 17-2 You're a contestant on a TV game show. In the final round of the game, if contestants answer a question correctly, they will increase their current winnings of $3 million to $4 million. If they are wrong, their prize is decreased to $2,250,000. You believe you have a 25% chance of answering the question correctly. Ignoring your current winnings, your expected payoff from playing the final round of the game show is . Given that this is , you play the final round of the game. (Hint: Enter a negative sign if the expected payoff is negative.) The lowest probability of a correct guess that would make the guessing in the final round profitable (in expected value) is . (Hint: At what probability does playing the final round yield an expected value of zero?)arrow_forwardThe average team in the NBA will score 112 points per game with a standard deviation of 8 points. What percent of teams will score between 120 and 132 points in a game?arrow_forward
- You expect to receive $10,000 as a bonus after 5 years on the job. You have calculated the present value of this bonus and the answer is $8000.What discount rate did you use in your calculation?arrow_forwardI'm struggling with 1 and 2arrow_forwardPlzz help (a) calculate safety level of both players (b) find nash equilibrium (pure and mixed)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education
Decision Tree Analysis - Intro and Example with Expected Monetary Value; Author: Vincent Stevenson;https://www.youtube.com/watch?v=cbCsCQ4l4Zs;License: Standard Youtube License