I don’t know much about the actual development of Puerto Rican prospects, but assuming the story told is correct, Brian Joura provides a nice example of how weakening of property rights hurts investment.

In 1990, Puerto Rico, a U.S. territory, was added to the MLB amateur draft, meaning that players from the island were subject to the same signing rules and terms of draft eligibility as players in the U.S. and Canada. While players from countries outside the MLB amateur draft could be signed as soon as they reached the age of 16, those subject to the MLB amateur draft had to wait until they finished high school.

The result:

In the 17 years since being included in the draft, only four players from Puerto Rico have approached the level of success achieved by the players from the 1982-88 period. Only Carlos Beltran, Jorge Posada, Javy Vazquez and Jose Vidro have emerged from what previously was a booming market of star players from Puerto Rico.

What happened here?

In a word - money. When teams had to compete to sign the best talent in an open marketplace, they had to spend money, both in signing bonuses and in promoting their brand. Teams would spend money on facilities in these countries, hoping players would develop allegiances to an organization. It’s no coincidence that three of the 13 players listed above (Gonzalez, Rodriguez and Sierra) signed with the Texas Rangers. Teams added locally-based scouts to their payroll to help identify talented players at an early age so they could get the jump on other teams.

But with the addition of Puerto Rico to the annual amateur draft, a team no longer had incentive to invest money in developing relationships in Puerto Rico because a player they spent money on could be drafted by any of the other teams in MLB. So money that might have gone to Puerto Rico now went elsewhere. Like Venezuela, which has sent Bobby Abreu, Edgardo Alfonzo, Miguel Cabrera, Carlos Guillen, Ramon Hernandez, Richard Hidalgo, Victor Martinez, Melvin Mora, Magglio Ordonez and Johan Santana, among others, to the majors since 1990. The Astros have been very active in Venezuela, signing Abreu, Guillen, Hidalgo and Santana from the above list.

Now that there is less benefit to finding and signing a hidden gem in Puerto Rico, teams have little reason to stay. Also, informal local “agents” who scout and develop prospects in return for a cut of future player earnings have less incentive to find at groom pre-16 talent. The draft reduced signing bonuses, and agents may have then decided spend time doing things other than finding baseball talent.