Sunday, June 24, 2012

The sports industry and positional externalities (by Francesc Trillas)

Since I’m following the Eurocup (with all these astonishing stadiums), writing on the economics of big sports events and also reading “The Darwin Economy” by Robert H. Frank, which I have to review for a journal, I have been associating the three things in my mind. In the years devoted to pursue the dream of organizing a big sport event, public intervention is radically biased to costly actions related to the event, which are subject to escalation of commitments and behavior similar to an arms’ race. This is to the detriment of other public investments, such as in human capital (health and education) or social expenditure, which are less visible but far more important. Only large net economic benefits from hosting these events would justify the bias, and these benefits just do not show up in the empirical evidence. Financial Times journalist Simon Kuper has repeatedly pointed out that big sports events should honestly be sold as big parties and not as investments. But this would not solve the problem, because as Frank shows in his book, parties are subject to consumption cascades. Nobody wants to be left behind and this goes also to the detriment of other more important expenditures where there are not positional externalities or these are less prevalent.  

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