Scenario: The following excerpt is from Timothy R. Hylan, Maureen J. Lage, and Michael Treglia, "The Coase Theorem, Free Agency, and Major League Baseball: A Panel Study of Pitcher Mobility from 1961 to 1992" ( Southern Economic Journal 62, no. 4 (1996): 1029-42).
Many economists and legal scholars interpret the [Coase] theorem as containing two propositions. The first is that, in the absence of transactions costs and wealth effects, parties will bargain to an efficient outcome. The second holds that the same outcome will be achieved regardless of the distribution of property rights. … Major League Baseball [MLB] presents a natural experiment consisting of an industry in which there has been an explicit change in the assignment of property rights. Beginning in 1879, … a player could negotiate salary only with the team that owned his contract and the team could trade or sell the player as management saw fit. In 1976 this system was replaced by the institution of free agency whereby a player with at least six years of Major League experience acquired the right to sell his services to prospective buyers…. The empirical analysis shows that after the introduction of free agency, the pitchers with greater longevity in the major leagues are less likely to move relative to their mobility in the pre-free agency period. The results also indicate that, in general, better pitchers are less likely to move and that pitchers playing on teams with higher winning percentages or in large market cities were less likely to move.
-Refer to the scenario above.If the Coase Theorem holds for baseball playing services in MLB,which of the following should be expected after the introduction of free agency?
A) Free agents will be paid more than non-free agents.
B) Pattern of mobility (changing teams) by players with similar characteristic and performance should be similar before and after the introduction of free agency.
C) Outcome of bargaining between teams and players will be inefficient after the introduction of free agency.
D) Free agents will be less likely to be unemployed than non-free agents.

Question

Quizplus · Accepted Answer

According to the Coase Theorem, in the absence of transaction costs and wealth effects, parties will bargain to an efficient outcome, and the same outcome will be achieved regardless of the distribution of property rights. The introduction of free agency changes the assignment of property rights in the MLB, allowing players to sell their services to prospective buyers. Therefore, the expected outcome should be similar patterns of mobility (changing teams) by players with similar characteristics and performance before and after the introduction of free agency. The other answer choices cannot be inferred from the information provided.

Scenario: the Following Excerpt Is from Timothy R