Question

Baseball, like other types of entertainment, often provides massive compensation packages to star employees. The justification cited is that, even though an employee who is “almost as good” can be hired for a fraction of the amount paid for a star, the value of having the best can make the expenditure worthwhile. Explain by using production function.

Q1) Does this seem fair?

Q2) Would it make sense to cap the compensation that can be paid to star employees at some multiple of the lowest paid employee?

Q3) What effect do you think this would have on entertainment revenues?

Answer 1

Based on what is presented, this does seem fair. The top-notch athletes continue to put their physical bodies out there playing a very competitive sport. Newer athletes have not proven their worth to the fans or the league at this level, therefore often making them not worth as much as a more advanced player with a stronger fan base. The athletes need to prove their worth as a means to make the money that a star such as Rodriguez makes. In the end a cap on the amount a player can receive would have a more negative impact on the league with player and attendance