Phil Birnbaum of Sabermetric Research has a lengthy post about the relative value of free agents. There’s a lot of economics involved, but it’s worth the (attempted) read. Econ 101 might be a prereq:
In mechanics, and baseball players, and real life, when one party values something higher than the next party, that does NOT mean they pay more for it. It means they buy a higher quantity. If I love Taco Bell and you only like it, it doesn’t mean I wind up paying $3 for a taco while you pay $1. It means that we both pay $1, but I wind up going more often.
Similarly, the bigger garage doesn’t pay more for mechanics – it just hires more of them. And the New York Yankees don’t pay more for free agents – they just sign more of them.
Birnbaum is arguing against JC Bradbury‘s model for valuing free agents. The quoted part above doesn’t have much to do with that; I just used it because it wasn’t over my head. I’ll be curious to see what Bradbury has to say in response.
But until then, sabermagician Tom Tango throws his own two cents in:
Maybe the better model is this: teams are given a budget and will spend to that budget. There’s a fixed level of wins available. Wins are paid at a constant level overall, with a premium for free agents and a discount for arb, and virtually flat for pre-arb players. Call it “the sports model”.
Yeah, that probably sounds right.