Allocation of Talent

I am in the middle of catching up on the backlog of things on my reading list after being on vacation for a week and found something that I found to quite interesting and thought it would be worth a share (If this has already made the rounds sorry for the duplication on a week old post).

The article in question is from Marginal Revolution and revolves around an email sent by economist and baseball fan J.C. Bradbury talking about the allocation and ways that talent is evaluated in the different major leagues.

What does Jeremy Lin tell us about talent evaluation mechanisms? This article argues that the standard benchmarks for evaluating basketball and football players at the draft level are flawed. The argument is that Jeremy Lin couldn’t get the opportunity to succeed because his skill wasn’t being picked up by the standard sorting procedure. This got me thinking. Baseball sorts players in a different way than basketball. In professional basketball (and football), college sports serve as minor leagues, where teams face a high variance in competition (the difference between the best and worst teams in a top conference is normally quite large), with very little room for promotion. There is some transferring as players succeed and fail at lower and higher levels, but for the most part you sink or swim at your initial college. This is compounded by the fact that the initial allocation of players to college teams is governed by a non-pecuniary rewards structure with a stringent wage ceiling, which likely hinders the allocation of talent. At the end of your college career, NBA teams make virtually all-or-nothing calls on a few players to fill vacancies at the major-league level. In baseball it’s different. Players play their way up the ladder, and even players who are undrafted can play their way onto teams at low levels of the minor league. At such low levels, the high variance in talent is high like it is in college sports; however, promotions from short-season leagues through Triple-A, allow incremental testing of talent along the way without much risk.

I've always found the different ways that the major leagues have developed their talent to be quite fascinating. I am not so sure I necessarily agree with the conclusion that the way that football and basketball bring talent into their leagues is sub-optimal because there are few occasions like the Lin situation where a player falls through the cracks only to become a star even though there is a great incentive on the parts of general managers and scouts to try and find these players.

Anyway I find that this is an interesting thing to ponder.

UPDATE: As I continue to read through my RSS reader I notice that David Pinto weighed in on the topic as well. Here is his take.

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