The guiding principle of Microeconomics is that an activity should be continued until the reward of an additional unit of that activity (marginal benefit) equals the cost of an additional unit of that activity (marginal cost). While the idea of continuing an activity until there is no net benefit seems like commonsense, the difficulty comes when giving non-monetary benefits and costs a monetary value. One of the most common and controversial examples of a non-monetary benefit/cost is human life.
Many people, sports enthusiasts included, tend to believe the notion that teams with the most money win the championships. My project will look at data for the past ten years from Major League Baseball and examine if that is the case. Sports economists have shown that there is a positive correlation between payroll (amount of money a team pays its players) and the number of wins that team earns. I will be modeling my project off a previously published paper by Szymanski, Zimbalist, and Hall, using simple and multiple linear regression to model the effects of payroll on a team’s win percentage. I will be using my data set to answer different questions, such as whether money spent on a pitcher is more effective than money spent on a catcher or an outfielder; or if payroll size may be significant in the regular season by not in the post-season.