A Test of the Resource-Based Model Using Baseball Free Agents

This paper examines a nearly untested premise of the resource-based view of the Žrm: managers can exploit uncertainty about a factor’s true value to generate returns. Our results show that empirically validating this basic proposition is difŽcult and potentially impossible, despite our use of a rather simple empirical setting. While market imperfections appear to underlie the payment of baseball free agents, we cannot easily determine whether this imperfection constitutes a return or not. In addition, while we Žnd convincing evidence of uncertainty underlying owner’s expectations of a free agent’s performance potential, it is not clear whether team owners can exploit this uncertainty by amassing superior informational strategies or investing in complementary assets. Our difŽculty in testing resource-based propositions suggests limitations to the theory’s practicality.