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The effect of the initial distribution of labor-related property rights on the allocative efficiency of labor markets


Dietl, Helmut Max; Lang, Markus; Orlowski, Johannes; Wegelin, Philipp (2024). The effect of the initial distribution of labor-related property rights on the allocative efficiency of labor markets. Frontiers in Behavioral Economics, 3:online.

Abstract

Introduction
The Coase Theorem posits that frictionless markets efficiently allocate scarce resources as long as property rights are fully specified. Our empirical study investigates how the initial allocation of labor-related property rights influences the allocative efficiency in labor markets for skilled workers within a highly competitive environment—professional basketball. Specifically, we compare two regimes: one where employers can trade workers to other employers without the worker's consent, and another where workers are free agents, able to negotiate and move freely without their employer's consent.
Methods
We utilize the NBA as a “laboratory” to conduct our analysis, constructing a unique panel dataset that includes 3,132 player-season observations spanning 17 regular seasons from 2003/04 to 2019/20. To address our research question, we employ linear panel regression models to analyze the data.
Results and discussion
The findings reveal a decline in productivity among workers who transition to new employers as free agents, a phenomenon not observed among non-free agents. This observation suggests that allocative efficiency might be higher when workers are traded without their consent compared to when they exercise their autonomy as free agents. These findings highlight the significant impact that the initial distribution of labor-related property rights has on labor market efficiency, potentially challenging the assumptions of the Coase Theorem. However, the lack of a statistically significant difference in productivity changes between free agents and non-free agents moving to new employers prevents us from definitively rejecting the predictions of the Coase Theorem.

Abstract

Introduction
The Coase Theorem posits that frictionless markets efficiently allocate scarce resources as long as property rights are fully specified. Our empirical study investigates how the initial allocation of labor-related property rights influences the allocative efficiency in labor markets for skilled workers within a highly competitive environment—professional basketball. Specifically, we compare two regimes: one where employers can trade workers to other employers without the worker's consent, and another where workers are free agents, able to negotiate and move freely without their employer's consent.
Methods
We utilize the NBA as a “laboratory” to conduct our analysis, constructing a unique panel dataset that includes 3,132 player-season observations spanning 17 regular seasons from 2003/04 to 2019/20. To address our research question, we employ linear panel regression models to analyze the data.
Results and discussion
The findings reveal a decline in productivity among workers who transition to new employers as free agents, a phenomenon not observed among non-free agents. This observation suggests that allocative efficiency might be higher when workers are traded without their consent compared to when they exercise their autonomy as free agents. These findings highlight the significant impact that the initial distribution of labor-related property rights has on labor market efficiency, potentially challenging the assumptions of the Coase Theorem. However, the lack of a statistically significant difference in productivity changes between free agents and non-free agents moving to new employers prevents us from definitively rejecting the predictions of the Coase Theorem.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Scope:Discipline-based scholarship (basic research)
Language:German
Date:20 May 2024
Deposited On:21 May 2024 08:24
Last Modified:22 May 2024 03:56
Publisher:Frontiers Research Foundation
ISSN:2813-5296
OA Status:Gold
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.3389/frbhe.2024.1379215
  • Content: Published Version
  • Language: English
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)