Thursday, August 26, 2010

Perverse Incentives for Pittsburgh Pirates

I've already blasted this Slate article all over Facebook and Twitter, but it's worth posting here as well.

Baseball's revenue sharing system was designed to try to help baseball's poorest teams by forcing the richer teams to pay them millions of dollars a year. However, this weakens a team's incentives to win games and become more profitable, as all additional money earned by winning is partially offset by a drop in income from revenue sharing.

The phenomenon is similar to welfare or unemployment insurance. Someone who collects $400 a month in welfare would only become $600 a month better off by taking a $1,000-a-month job, not to mention the time and effort required to work the job.