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Manny bidding Manny July 16, 2009

There’s been some debate as to whether Manny Ramirez should have been allowed to make his rehab starts in AAA Albuquerque before returning to his Major League club, the Los Angeles Dodgers, after a 50-game suspension for drug use. Behind the cut, I’d like to think about some of the reasons behind the punishment and propose a solution.

Why was Ramirez suspended? Because he was using a banned substance, yes, but let’s unpack that. The purpose of the suspension is, presumably, to attempt to align the incentives such that a player who is tempted to use performance-enhancing drugs will find that the expected value of the marginal productivity of the drug use is lower than the expected value of the penalty. To break that down, there’s a probability π that a player who chooses to use banned substances will be detected, and a complementary probability (1-π) that he won’t be detected. As I discussed in an earlier post, we can run a regression and figure out what the values of the various statistics are worth. If the player is rational, he’ll be considering that using steroids will adjust his stats by some positive amount (i.e., that there will be a marginal product of drug use) and that will increase his salary when he next negotiates his contract. It’s also likely that the increased chance to be voted into the Hall of Fame or win a batting title, for example, will provide non-cash utility to the player, which we could also factor into MPdu. With the complementary probability, the player will be caught and will lose 50 games worth of salary (that is, the disincentive is 50*Salary/162, or 25/81 of his salary). Additionally, there will be disutility generated by the fans’ unwillingness to vote for him in the All-Star Game, for example, and the diminished likelihood of making the Hall of Fame.

If π*MPdu > (1-π)*25*Salary/81, then the player will rationally choose to use drugs.

If π*MPdu < (1-π)*25*Salary/81, then the player will rationally choose not to use drugs.

If π*MPdu = (1-π)*25*Salary/81, then the player will be indifferent between using drugs and not using drugs, so either choice makes sense based on the player’s tastes.

There are two main ways to decrease the proportion of players who use drugs – increase the probability of detection through more testing, or increase the disincentive to be caught using drugs by adding a lump-sum fine or increasing the length of the suspension (the 25 in our model) or both. I’m going to presume that 50 games was chosen as the length of the suspension for no good reason other than that it’s a nice big round number, and thus that the multiplier is essentially arbitrary. I’m also going to presume that Manny playing for the Isotopes imposes some positive externality on them and on the Dodgers – that the parent club will get better gate receipts from his appearances and that the players will benefit (probably by learning) from playing with a Major League-caliber player. The players in the Dodgers system will presumably be considered for MLB appearances at some point, and so the Dodgers benefit forM Ramirez‘s coaching function in his appearances at the AAA level.

(As a side note, a lump-sum fine would be a fine example of a Pigouvian Tax.)

It hardly seems fair that the Dodgers should benefit froM Ramirez‘s drug use. How do we solve this problem?

Auction Manny.

When a Major League player is suspended for drug use, allow him to make his 10 rehab starts. However, don’t automatically grant the right to assign him to the AAA club to the team he plays for. Instead, allow the clubs to bid on the right to have him do his rehab starts for their AAA team. Thus, Manny generates an externality on, say, the Buffalo Bisons (and therefore the Mets); however, the Mets have to pay an amount back to MLB that is, by the definition of an auction, more than anyone else was willing to pay.

A rational team will bid almost as much as they expect the player to generate in ticket sales and general utility, so the system is self-correcting with respect to the fame and ability of the player. However, MLB seems to benefit here. We can’t really allow that under a fair system, so I propose that the winning team’s bid be allocated to some combination of baseball development and drug education. Thus, every detected player loses $SuspensionMultiplier*Salary/162 in salary, some arbitrary club is granted the opportunity to profit from a shrewd bid but is unlikely to do so, and some combination of kids and drug education programs benefit about the amount that the arbitrary club feels Manny is worth to them as a AAA player.

Minor-league rehab
should not benefit users;
auction Manny off.