Wednesday, March 4, 2015
The economics of soccer: behaviour, institutions and evolution
When I started teaching a course on the economics of soccer a few years ago in the Study Abroad program in Barcelona I suggested that there were two broad topics to be covered: soccer as an industry (supply, demand, competition...) and soccer as a laboratory to test hypotheses on incentives and behaviour. But most of the time I confessed that I found the laboratory side much more interesting than the industry side. Now I would qualify this. The reason is that I am reading and knowing more about the institutional subtleties of the supply side in the soccer and professional sports industries in general. An economist called Simon Rottenberg presented something similar to the Coase theorem for the sports leagues in 1956 even before Ronald Coase wrote his article on what would be later called his theorem. He said that the allocation of talent across teams did not vary with changes on the property rights of the revenue streams associated with the industry. That has been a working hypothesis that has motivated theoretical and empirical work on interesting topics such as the objectives of firms, competition policy, federalism.. Different institutions have evolved in different sports and regions, most notably in the US and Europe. But that has not been the result of design, but mostly the result of evolution. The resulting institutions condition the incentives of lower principals and agents. As long as we depart in the analysis of the soccer industry from a conventional supply and demand analysis, and we focus on the way institutions try to internalize externalities and evolve as a result of the interaction between random shocks (such as the emergence of TV) and agency, the industrial side of soccer is as interesting as the analysis of incentives and rationality. Like in the title of the great book of Bowles on microeconomics, the interesting thing of soccer is to study the interaction of behaviour, institutions and their evolution.