Anthony C. Krautmann

Grades and student evaluations of teachers

Understanding the relationship between grading practices and student evaluations is especially important in higher education because of the increasing importance of this instrument in the promotion process. If evaluations can be increased by giving higher grades, then they are a flawed instrument for the evaluation of teaching. Further, this process may be contributing to the inflation of grades in higher education if faculty have an incentive to increase their evaluations. Also, grade inflation dilutes the signaling role of educational credentials in screening workers for the labor market. In this paper, we revisit the determinants of student evaluations in a model that allows for the possibility that (expected) grades are simultaneously determined. We estimate evaluations using both OLS and two-stage least squares (TSLS) and find that grades do affect an instructor’s evaluation. These results are consistent with the hypothesis that instructors can “buy” better evaluations through more lenient grading. [ JEL I20]

Shirking or Stochastic Productivity in Major League Baseball: Reply

Firms produce in an uncertain environment. The long literature on the theory of the firm under uncertainty has focused on demand uncertainty [4; 18; 14], the unanimity question [8; 15], or technological uncertainty [23; 1; 7]. Regarding the latter, an interesting question is how that randomness enters the technology. One source might be purely unpredictable factors such as the weather or accidents. Agricultural output, for instance, is dependent not only on the quantity of inputs hired, but on the amount of rainfall, natural disasters, and the like. A different source of technical uncertainty is variations in the quality and reliability of the input services hired. In professional sports, for example, the performance of an athlete varies from game to game and season to season. The reliability of capital, a crucial issue in nuclear power generation, is another example reflecting the stochastic nature of input productivity. One economic consequence of this randomness of productivity is that an employer cannot know a priori the inputs value but rather must form an estimate of its expected marginal contribution. Spence [20] showed how an employer uses signals such as educational attainment to determine if a worker is worth hiring. Once hired, the firm still faces the difficulty of determining if a below average realization of productivity resulted from shirking by the employee or a bad draw from his productivity distribution. This agency problem, outlined in detail by Alchain and Demsetz [1] and Holmstrom [10], has important implications to our perception of work effort, especially in the presence of long-term labor contracts. Allegations of shirking due to long-term job security have been associated with seniority rights, professional athletes, and in the academic institution of tenure.

Contract Length and the Return to Performance in Major League Baseball

This article focuses on the relationship between contract length and compensation in Major League Baseball. Because the best players receive both the highest salaries and the longest contracts, wage regressions that omit length can lead to misleading inferences. Although contract duration is positively related with salaries, the authors find evidence of a negative relationship between contract length and a player’s return to performance. These results indicate some type of trade-off going on in the negotiation process that has not been identified in the previous literature on compensating wage differentials.

Can We Find It at the Concessions? Understanding Price Elasticity in Professional Sports

The sports economics literature regularly finds that sports teams price admissions in the inelastic range of demand. Given that marginal revenue is negative in this range, yet marginal cost is always nonnegative, this result suggests an inconsistency in the profit motive of owners. In this article, we attempt to explain inelastic ticket pricing by considering the complementarity between tickets sold and concessions. Depending on marginal revenue and cost parameters, we show that it is entirely possible to find profit-maximizing owners pricing tickets in the inelastic region of demand to sell more concessions.

The Effectiveness of Incentive Mechanisms in Major League Baseball

Past work on principal-agent problems in sports does not effectively compare among players. The comparison must be made between players nearing contract negotiations and other players to detect ex ante strategic behavior (turning up performance just prior to contract negotiations) and ex post shirking (slacking off after signing the contract). The authors’ productivity measures include statistics reflecting both the player’s desire (or availability) to play as well as his performance once he enters a game. The data reject strategic performance. This suggests that mechanisms aimed at curbing strategic performance by players appear to be working well. However, pitchers with nagging injuries may be more likely to be placed on the disabled list while under long-term contracts. This may imply strategic behavior or, conversely, that clubs are choosing to protect an investment. A performance measure used to test for shirking affects some results but not the ultimate conclusions.

Economies of Scale in Nuclear Power Generation

Current prospects for the expansion of nuclear electric generating capacity appear dim; there has not been a domestic order placed for a nuclear power plant since 1978, and over 80 plants have been cancelled since the early 1970s. While a host of economic, political and environmental factors are responsible for the current state of the nuclear power industry, concern has increasingly focused on the cost effectiveness of nuclear power, with critics arguing that nuclear power is not an economically feasible alternative. Economies of scale are a crucial consideration in addressing nuclear power costs. At the plant level, scale economies could be associated with the size of generating units or with multiunit siting. If the former is important, the strong trend toward larger reactors would imply that, all else equal, electricity produced by new plants should cost less than previous experience would indicate. Siting several reactors at a plant, which is common practice in France, for example, would lead to lower costs if the latter factor is important. Despite the importance of these issues, virtually no empirical evidence on economies of scale in nuclear power operations is available.2 Existing studies of nuclear power production costs [20; 7; 26; 23; 22] typically specify some plant size and type, often the proverbial 1,000 MWe plant, and sum up the costs of the inputs required to run it, including a capital cost. By contrast, cost analyses for fossil-fueled electricity generation are more sophisticated.3 Perhaps the first application of econometric modeling in this area was by Nerlove [19]. However, a more up-to-date example is the study of Christensen and Greene [4], who estimated a translog cost function using cross sections of privately owned utilities in 1955 and 1970. Straightforward application of Christensen and Greenes techniques to nuclear power is prob-

Who Pays for Minor League Training Costs

As an alternative to monopsonistic exploitation, the underpayment of players in major league baseball may be explained as the attempt by owners to recoup general training expenses. In this article, a method is proffered for estimating the ‘surplus’ extracted from those players restricted by the reserve clause, where this surplus is defined as the difference between what the player is actually paid and what he would have received if he were a free agent. These estimates are then used to examine how the surplus varies across players. The results suggest a number of interesting aspects of the recovery of minor league training costs, monopsony exploitation, and the distribution of the surplus across players. First, owners only extract a surplus from ‘apprentices’ (i.e., those young players who are ineligible for salary arbitration). Second, the largest surpluses are extracted from those who cost the least to train. In fact, the surplus generated by star apprentices is about twice that of mediocre apprentices. Finally, the results suggest that the surplus extracted from minority apprentices is 10–15% higher than that extracted from white apprentices.

Competitive Balance in the Aftermath of the 1994 Players’ Strike

A new interseasonal measure of competitive balance in a sports league is presented. It is based on a Markov model of a team’s probability of qualifying for postseason play given the performance of the team in the previous season. Transitional probabilities are estimated for Major League Baseball teams before and after the 1994 players’ strike. The results indicate that there has been a significant deterioration in competitive balance for the seasons following the strike. Probability density functions for the prestrike and poststrike eras are also presented.

A note on the structural stability of salary equations - major league baseball pitchers.

The salaries of major league baseball players is a common subject for analysis in the sports economics literature. Although hitters and pitchers represent two separate groups, each of these two groups of players is assumed to be homogeneous so that aggregation within each group is appropriate. However, there are always potential problems associated with aggregation. If there are important differences between starters, long relievers, and stoppers that relate to their pitching skills and/or to their function in the production of team wins, then aggregation may lead to inaccurate conclusions regarding the determinants of their earnings. In this article, the authors examine the issue of aggregating the pitching input. By comparing a collective earnings equation for all pitchers with separate earnings equations for each type of pitcher, the authors find that the structure of salary rewards differs significantly between the groups. As such, the authors conclude that it is not appropriate to aggregate pitchers when analyzing the determinants of salaries.

Local taxes, schooling, and jobs in Illinois

Abstract In this study, the effects of local taxes and schooling on private non-farm employment growth in Illinois since 1980 are examined. Also, the determinants of educational outcomes (ACT scores, school attendance, and dropout rates) in Illinois are assessed. The most important findings are that: (1) property taxes have a highly significant negative effect on employment growth; (2) ACT scores (county averages) have a positive effect on jobs; and (3) expenditures per pupil have no effect on either employment changes or ACT scores. The most important predictors of ACT scores are found to be family background including family income, parents schooling, and single parenthood.