major league corporate inefficiency

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

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.



--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu
michaelperelman.wordpress.com