Everybody else is a hypocrite (World Cup edition)

In the last issue of The Economist there are some very interesting articles about the World Cup. One of them reports that there is an increasing number of autocratic organizers because democracies realize big sports events have more social costs than social benefits and vote against them.

Of the three corners of Rodrik’s trilemma (hyperglobalization, democracy and national sovereignty), the Qatar World Cup illustrates the consequences of removing democracy, but keeping national sovereignty and hyperglobalization: autocratic powers competing for resources, in this case the right to organize an event of global impact with huge demand and propaganda potential.

Prestigious media outlets such as The Economist or the Financial Times have made an effort to still provide a rationale not to boycott this World Cup. The Economist’s editorial ends asking ironically if we should rotate the tournament among the 3 nordic countries that have an absolute clean record of respect for human rights (why not?). Others have argued that in Argentina 1978 the World Cup threw light on a brutal dictatorship and contributed to its decline. But the same did not happen with Berlin 1936 or with the World Cup or the Winter Olympics in Putin’s Russia.

With less style, the President of FIFA, Infantino said that “we Europeans should apologize the next 3000 years for what we have done in the past 3000 years,” after saying that he was proud of the FIFA badge he was wearing and saying that he was not responsible for things that were decided 12 years ago, and now we have to make the best of it (although he is presiding over the same corrupt structure that gave the event to Qatar, the one that has decided that the next World Cup will have 48 teams instead of the current 32: more teams, more games, bigger deals). 

The dark side of soccer is explained by its success. Without the magnitude that the show has acquired in a world that lacks a global government, there would be no large-scale corruption, nor would there be bribed officials, nor the opportunistic magnates, nor the advisers who lead athletes to show up in tax fraud and tax havens scandals. Soccer is the most globalized and unified sport. FIFA is the gatekeeper of a global asset in an ungoverned world, and this privileged position is guaranteed by its ownership of the World Cup, the most successful competition, the one in which the best soccer players in the world star in different teams for a month, with a much higher level of equality and uncertainty than in club competitions. 

If someone dares to bypass the power of FIFA, it threatens the brave with leaving them without playing in a World Cup. As argued by Milanovic some time ago, the rules of soccer between national teams, where basically each player can only participate in one national team in his entire career, without transfers of players between national teams, combined with the mobility of players between clubs (which make it easier for the best players from whatever country they are, to play in the best clubs in Europe, that is, in the world), have led to much equalization among national teams, and to raise their level. As Kuper and Szymanski say, in the World Cup edition of their famous book "Soccernomics", far from being in a bubble, the world of soccer continues in a process of solid expansion, reaching more people who are fond of and passionate about this sport, perhaps in the absence of other challenges. 

In 2015, as shown in Netflix’  documentary "FIFA Uncovered," several FIFA executives were arrested by the Swiss police on the orders of the FBI, accused of corruption and of being part of organized crime. Among those affected there were officials from various continents. The very decision to assign the World Cup to Qatar was surrounded by accusations of bribery. 

Holding the World Cup in Qatar has at least had the virtue of triggering a debate about what fans and athletes can do to protest something so complementary to corruption, such as the involvement in sport of autocratic countries (like Qatar -certainly not the only one, and not the worst), whose leaders take advantage of soccer to launder their crimes and their reputation as human rights abusers. The debate on the sportswashing phenomenon has reached the pages of prestigious media. 

Several voices have suggested that a requirement to have the opportunity to organize a major sporting event, and the publicity that this allows, should be an impeccable record of respect for human rights. Amnesty International has demanded that FIFA should at least create a fund to compensate the families of immigrants who died in Qatar's World Cup construction sites, although it would be difficult to agree on the figures, among the three officially recognized by the Qatari government, and the thousands denounced by The Guardian newspaper. The players of the Australian team released a video joining the pro-human rights demands, and ten teams (eight of them at the time of writing this text, playing in Qatar) have joined a campaign in which their captains will wear an armband in defense of the rights of people from the LGTBQ+ community. Some coaches known for their few diplomatic qualms, such as the Dutchman Louis Van Gaal, have raised eyebrows about holding the event in Qatar. 

Many of us will not have the willpower to join a fan strike. It is not possible -at least to me- to disguise this weakness behind ethical arguments.

Useful Microeconomics

 Microeconomics does not need to be a distant topic. My design of the Applied Microecnomics course  (taught jointly with Javier Asensio) at the Master in Applied Research in Economics and Business of my university combines theory and discussion of empirical papers in top journals.

I paste the syllabus here. As we finish the current edition and we prepare the next one, I would most welcome suggestions of topics, references and discussion papers. 

Objectives

-Learn the basic skills to understand and be able to use the basic models and theories (old and new) in microeconomics, to better analyze businesses and the economy.

-Use theory to ask relevant questions to be answered with data and empirical work.

-Associate microeconomics to some of the most pressing problems of our time: digital revolution, climate change, inequality.

Contents

1.Optimization models of consumer and firm behavior

Utility Maximization. From preferences to demand. Demand functions. Elasticities and consumer surplus. Income effect and substitution effect. An exchange economy. Efficiency. The problem of endogenous, social and changing preferences. Profit maximization and cost minimization: supply functions and cost functions. Technology and costs. Productive efficiency. Existence and objectives of the firm, and agency theory. Transaction costs and incomplete contracts theories of the firm.

 Discussion Paper: Alcott, Braghieri, Eichmeyer, Gentzkow (2020), The welfare effects of social media, American Economic Review, 110(3): 629-76.

 Recommended Reading:

-Varian (2014), chapters 1-10, 14, 15, 18-23.

-Church and Ware (2000), chapter 3.

-Farber, H. (2015), Why Can’t you Find a Taxi in the Rain and Other Labour Supply Lessons from Cab Drivers, Quarterly Journal of Economics, 130(4): 1975-2016.

-Fort, R. (2004), Inelastic Sports Pricing, Managerial and Decision Economics, 25(2): 87-94.

-Nerlove, M. (1961), Returns to Scale in the Electricity Industry, in “Measurement in Economics”, Stanford University.

-Hausman, J.A. (1997), Valuing the Effect of Regulation on New Services in Telecommunications, Brookings Papers on Economic Activity. Microeconomics, vol. 1997: 1-54.

-Bloom, N.; Van Reenen, J. (2007), Measuring And Explaining Management Practices Across Firms And Countries, Quarterly Journal of Economics, Vol. CXXII, Issue 4.

-Garicano, L. (2016), Why Organizations Fail: Models and Cases, Journal of Economic Literature, 54(1): 137-192.

 

2.Welfare economics: efficiency, fairness and mechanisms of resource allocation

 Property Rights, markets (including financial markets), governments, communities, hyerarchies. Welfare theorems, market failures, Coase theorem, second best, inequalities and merit wants. The “tragedy of the commons.” Social Welfare Functions. Non-welfarist approaches. Instruments of public intervention: public institutions, taxes, public expenditures, regulation. Corporate Social Responsibility. The economics of disruptive change: climate change, digital revolution.

 Discussion Paper: Fremstad, A.; Paul, M. (2019), The Impact of a Carbon Tax on Inequality, Ecological Economics, 163, 88-97.

Recommended Reading (and watching):

-Varian (2014), chapters 9, 16, 33-37.

-Bowles (2004), chapters 2 & 6.

-Hindriks and Myles (2013), chapter 2.

-N. Stern (2010), Imperfections in the Economics of Public Policy, Imperfections in Markets and Climate Change,  Journal of the European Economic Association, 8(2-3): 253-288.

-E. Ostrom (2009), Nobel Prize lecture.

-Robert Shiller’s Financial Markets course on video at Yale University: https://oyc.yale.edu/economics/econ-252.

-Vives, X. (2016), Competition and Stability in Banking: the role of Competition Policy and Regulation, Princeton University Press.

-Kietzmueller & Shimshak (2012), Economic Perspectives on Corporate Social Responsibility, Journal of Economic Literature, 50(1): 51-84.

 

3.Basic Game theory

Definition of a Game, Dominant Strategies (examples: prisoners’ dilemma, public goods games), Nash Equilibrium (examples: Hotelling, Cournot, Bertrand), Mixed Strategies, Cooperation and Coordination Games, Risk Dominance, Repeated Games, Sequential Games. Evolutionary Game Theory with 2 players and two types.

 Discussion Paper: Ignacio Palacios-Huerta (2003), Professionals Play Minimax, Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 395-415, 04.

 Recommended reading:

-Varian (2014), chapters 28 & 29.

-Bowles (2004), chapter 1.

-Dixit, Skeath and Reiley (20 15), Games of Strategy, 4^th edition, Norton & Company.

-Levitt, List & Reiley (2010), What Happens in the Field Stays in the Field: Exploring Whether Professionals Play Minimax in Laboratory Experiments, American Economic Review, 78(4): 1413-1434.

-Andreoni, J. (1995), Warm-Glow versus Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in Experiments, Quarterly Journal of Economics, 110(1): 1-21.

 

4. The challenges of deciding together: social choice, institutions and political economy in microeconomics

The Public Choice critique. Wicksell and Lindahl: the promise and limits of unanimity. Median voter theorem. Voting rules and Arrow’s impossibility theorem. Inequality and democracy: why the poor do not expropriate the rich in democracies. Lobbying and corruption. Incentives in the public sector. Transaction costs in politics and the political Coase theorem? Institutions and economics.

 Discussion Paper: Ferguson, Voth (2008), Betting on Hitler, Quarterly Journal of Economics.

 Recommended Reading:

-Hindriks and Myles (2013), chapter 11.

-Sen (2017), Collective Choice and Social Welfare, revised edition.

-Achen and Bartels (2016), Democracy for Realists: Why Elections do not produce responsive government, Princeton University Press.

-Acemoglu & Robinson (2012), Why Nations Fail: The Origins of Power, Prosperity and Authority, Crown Business.

-MacLeod, W.B. (2013),   Book Review of “Why Nations Fail” and “Pillars of Prosperity,” Journal of Economic Literature, 51(1): 116-143.

-Rodrik, D. (2020), Why does globalization fuel populism? Economics, Culture, and The Rise of Righ-wing Populism, NBER Working Paper, 27526.

-Bagues & Esteve-Bolart (2016), Politicians’ Luck of the Draw: Evidence from the Spanish Christmas Lottery, Journal of Political Economy, 124(5): 1269-1294.

-Bonica, McCarty, Poole, Rosenthal (2013), Why Hasn’t Democracy Slowed Rising Inequality? Journal of Economic Perspectives, 27(3): 103-124.

-Yermack, D. (2010), Shareholder Voting and Corporate Governance, Annual Review of Financial Economics, 2: 103-125.

 

5.Regulation of natural monopoly

From perfect competition to monopoly in partial equilibrium. Non-convexities and the welfare theorems. Definition of natural monopoly. Optimal prices for a natural monopoly. Asymmetric information and the Laffont and Tirole model. Sunk investments and the commitment problem. Regulatory capture. Liberalization and universal service. Liberalization and access prices. Vertical integration and separation. Competition for the market and yardstick competition. Natural monopoly and modern digital markets.

 Discussion Paper: Lim, Yurukoglu (2018), Dynamic Natural Monopoly Regulation: Time Inconsistency, Moral Hazard and Political Environments, Journal of Political Economy.

 Recommended Reading:

-Laffont and Tirole (1993), A Theory of Incentives in Procurement and Regulation, MIT Press.

-Laffont (2000), The Political Economy of Regulation, Oxford University Press.

-Church and Ware (2000), chapters 2, 4, 22, 24-26.

-Armstrong and Sappington (2006), Regulation, Competition and Liberalization, Journal of Economic Literature, 44(2): 325-366.

-Estache and Wren-Lewis (2009), Toward a Theory of Regulation for Developing Countries: Following J.J. Laffont’s lead, Journal of Economic Literature, 47(3): 729-70.

-Trillas, F.; Montoya, M.A. (2011), Commitment and Regulatory Independence in Practice in Latin American and Caribbean Countries, Competition and Regulation in Network Industries, 12(1): 27-56.

-Tirole, J. (2020), Competition and the Industrial Challenge for the Digital Age, unpublished paper.

 

 6. Behavioral Economics

Departures from the standard rationality assumptions. Prospect theory. Behavioral public economics and behavioral industrial organization.

 Discussion Paper: Chetty, R. (2015), Behavioral Economics and Public Policy: A Pragmatic Perspective, American Economic Review, 105(5): 1-33.

 Recommended Reading:

-Varian, H. (2014), chapter 30.

-Hindriks and Myles (2013), chapter 3.

-Dhami, S. (2016), The Foundations of Behavioral Economic Analysis, Oxford University Press.

-Bhargawa & Loewenstein, (2015), Behavioral Economics and Public Policy 102: Beyond Nudging, American Economic Review, 105(5): 396-401.

-Kagel & Roth (2016), Handbook of Experimental Economics, Volume 2, Princeton University Press.

-Salganik, M.J. (2018), Bit by Bit. Social Research in the Digital Age, Princeton University Press.

-Tirole, J. (2017), Economics for the Common Good, Princeton University Press.

-Putterman, L. (2012), The Good, the Bad and the Economy, Langdon Street Press.

-Spiegler, R. (2011), Bounded Rationality and Industrial Organization, Oxford University Press.

-Della Vigna and Malmendier (2006), Paying not to go to the gym, American Economic Review, 96(3): 694-719.

7. Market Power Measurement and Implications

(taught by Javier Asensio)

SCP Paraidgm and NEIO. Is market power rising? Implications for the digital economy & labour markets.

 Recommended Reading:

- J. Church and R. Ware (2000), Industrial Organization: A Strategic Approach, McGraw-Hill, Chapter 12.

P. Davis and E.Garcés (2010), Quantitative Techniques for Competition and Antitrust Analysis, Princeton UP, Chapter. 6.

- Genesove, D., & Mullin, W. P. (1998). Testing static oligopoly models: conduct and cost in the sugar industry, 1890-1914. The RAND Journal of Economics, 355-377.

- De Loecker, J., & Eeckhout, J. (2017). The rise of market power and the macroeconomic implications (No. w23687). National Bureau of Economic Research.

 

8. Entry dynamics and innovation

(taught by Javier Asensio)

Modelling entry. Estimating market power from entry models. Entry, exit & innovation

Recommended Reading:

- P. Davis and E. Garcés (2010) Quantitative Techniques for Competition and Antitrust Analysis, Princeton UP. Chapter 5.

- T. Bresnahan and P. Reiss (1991) Entry and competition in concentrated markets, Journal of Political Economy, 99, 977-1009.

- Klepper, S. (1996). Entry, exit, growth, and innovation over the product life cycle. The American economic review, 562-583.

- Aghion, P., Blundell, R., Griffith, R., Howitt, P., & Prantl, S. (2009). The effects of entry on incumbent innovation and productivity. The Review of Economics and Statistics, 91(1), 20-32.

- Dubois, P., De Mouzon, O., Scott‐Morton, F., & Seabright, P. (2015). Market size and pharmaceutical innovation. The RAND Journal of Economics, 46(4), 844-871.

 

 

General Bibliography

Varian, H. (1992), Microeconomic Analysis, Norton and Company. [CS(-2) E2.10Var (not on loan)]

Varian, H. (2014), Intermediate Microeconomics, 9^th edition. [CS(-2) E2.10Var]

Bowles, S. (2004), Microeconomics. Behavior, institutions and evolution. Princeton University Press. [CS(-2). E2.10 Bow]

Bowles & Halliday (2022), Microeconomics (pdf available in Halliday’s web page)

Hindriks and Myles (2013), Intermediate Public Economics, second edition. [CS(-2 & 0). E10.0 Hin]

Church, J. and R. Ware (2000), Industrial Organization: A Strategic Approach, McGraw-Hill. [Can be freely downloaded on-line:  https://works.bepress.com/jeffrey_church/23/]

Davis, P. and E. Garcés (2009), Quantitative Techniques for Competition and Antitrust Analysis, Princeton University Press. [CS(0) E15.232 Dav].

You have two weeks to read the new edition of "Soccernomics"

Journalist Simon Kuper and economist Stefan Szymanski have just published a substantially expanded edition (a timely “world cup edition”) of their famous book Soccernomics. This book inspired me some years ago to propose a course on Soccer & Economics that I teach at the Study Abroad program (for foreign undergraduate students) of the Autonomous University of Barcelona.

Most if not all chapters have updated data and there are new chapters on a number of topics, such as the “neoliberal” European Superleague that failed to exist in 2021, or a chapter calling for financial reparations to compensate for the historic discrimination of women in soccer.

There is updated work on who are the best national teams. In relative terms, the best are small post-Yugoslav countries such as Croatia and Bosnia, that is, relative to what should be expected from their population, income levels and soccer experience (and they benefit a lot from the strong experience of the former Yugoslavia). Spain has been doing well, according to the authors, coinciding with the economic growth and increasing openness of the country in the recent decades. Both Spain, the post-Yugoslav republics and other national teams have benefited from their talent pools becoming more internationalized. That’s one of the paradoxes of soccer: national teams benefit from internationalization.

There is an interesting discussion of the data analysis revolution in soccer (more about that in Kuper’s book review in The New Statesman of Rory Smith’s book “Expected Goals”). The authors of Soccernomics argue that this revolution is still at a very early stage (like what alchemy was to the Scientific Revolution) and that the jury is still out to decide whether clubs who claim to have been very successful with data analysis, have really been so (perhaps Liverpool were not so consistently good at that after all).

Like in previous editions, but with new data to support their claim, Kuper and Szymanski argue that it is very difficult to predict who will be a good manager, but that there are very few managers that add any value to the game. They are skeptical that former famous players can in general be better managers than people who study and truly specialize on being a manager (“good horses do not make good jokeys,” as Italian manager Sacchi used to say).

In a final chapter, the authors are optimistic in that soccer will survive in the era of social media and streaming, because these will only provide more platforms to reach more people in more places. The success of the game and its combination with new technologies will attract more fans and more and more investors (that will keep losing money).

Soccernomics is still the best introduction to the economic (in a very broad sense) keys of the most globalized sport. It uses academic standards to shed light on a number of relevant issues. It cannot cover everything, and it is not fair to criticize something for what in doesn’t address in depth (when it already has 400 pages). But, still, one misses a chapter on corruption (although there are some references here and there) and some more updating of some pieces. For example, the 60% advantage of kicking first in penalty shoot-outs is still conventional wisdom (briefly mentioned in the chapter on penalty kicks), but I’m not sure it still is academic wisdom, after an article on 2012 (that included the data used to make the 60% claim but also many more observations for the period when kicking first or second was purely random) reduced the percentage to a non-significant 53% -and after all the shoot-outs in the 2018 World Cup being won by the team that kicked second.

Like many people, I don’t have the strength of will to participate in a fans’ strike in the Qatar World Cup (as I probably should). Given that many of us will be watching it, reading the updated Soccernomics ahead of it is a good investment, so much better than wasting our time incurring the mental risk of reading the sports media. Soccer has a dark side, but it also provides lots of opportunities to learn.