Econ 323 (5-10)

Question 1

Why do fans/leagues/teams want competitive balance?

Answer 1

-If competitive balance is upset demand for sports may fall
-Ex: salary caps, draft policies

Question 2

What are the ways to measure competitive balance? How do we interpret our calculations?

Answer 2

Look at balance between the season
Look at balance across multiple seasons
We measure by looking ar standard deviation
-if a league is competitive, teams should have equal opportunities

Question 3

How balanced are the American sports leagues?

Answer 3

NFL: R=1.61
MLB: R=1.71
NBA(most unbalanced)= 2.82
As R increases competitive balance decreases…

Question 4

Why do teams build new stadiums?

Answer 4

Builds excitement around the teams
Boost stagnant economies
Cities willing to help teams pay for new facilities because it draws attention
Allows teams to increase ticket prices

Question 5

Honeymoon effect

Answer 5

teams who move to new stadiums gets an immediate attendance boost

Question 6

multiplier effect

Answer 6

A small increase of income can have a larger effect on the economy
Ex: I own a restaurant next to the ballpark that gets revenue, as a result I get a boost in business and make $30k. I saved some and spent $25k upgrading my kitchen equipment. Now the equipment company saves some of that and buys a new truck for 20k.

Question 7

closed economy calculations

Answer 7

1/mps or 1/1-mpc

Question 8

Open econom calculations

Answer 8

M= 1/(MPS+MPI) or 1/(1-MPC+MPI)

Question 9

Positive externalities- Externalities of sports stadium

Answer 9

Attracts tourists
Makes cities look better
Brings business to local area

Question 10

Negative externalities

Answer 10

Construction
Air pollution
Traffic
Increased taxes

Question 11

Different eras of stadium financing

Answer 11

1890=1930: entrepreneurial era
Owners build and operated their own ballparks
Most places had “field” or “park” in their game instead of “stadium”
Build to force fans to pay to watch games
Most parks had the name of the owners who built it
1980-now: Public private partnerships
Teams pay about half the construction costs and the cities/government pay for the rest of it

Question 12

• Different ways to fund stadiums

Answer 12

Tax( you want tax to satisfy horizontal equity)
private/ public funding
Raising “sin taxes” (example can be cigarettes)
User fees

Question 13

Winner’s Curse

Answer 13

The winner of an auction overpays for what she/he has won

Question 14

Tax Increment Funding

Answer 14

New stadium means increased revenue in the area which means increased tax revenue from existing taxes(sales taxes) which means cities dedicate this to additional revenue to pay back loans/ bonds issued to construct the stadium.

Question 15

Labor supply and demand

Answer 15

Athletes are supplier of labor
Teams demand labor
The marginal revenue product of workers

Question 16

Factors affecting demand

Answer 16

Existence of superstars
Popularity among sports
Number of teams in the league
Rule changes/roster limits

Question 17

Factors that affect supply

Answer 17

Taxes, Technology and Input Prices

Question 18

Attribution-

Answer 18

when two or more parties are in a dispute sumit proposals to be an independent, 3rd party proposes a solution or compromise

Question 19

Marginal revenue product

Answer 19

a player’s salary will be set to (approximately) equal his expected contribution to the team’s revenues over the season

Question 20

equation for MRP

Answer 20

Price of good x (Change in quantity produced/Change in L)
or
Marginal revenue of wines x number of wins

Question 21

Human capital investment

Answer 21

How can we model a player who invests resources in his/her skills
Set of skills contributing to a person’s productivity
General- increases productivity regardless of the setting
Specific- increases a workers MRP in a specific context

Question 22

Tournament incentives for effort and cheating

Answer 22

The large discrepancy between 1st and 2nd place rewards can have an effect on support staff
Parents of olympians have been documented for abusing child athletes and forcing kids to practice figure skating and gymnastics
This incentivizes sports medicine staff to seek/provide performance enhancing drugs

Question 23

Performance enhancing drugs and the Prisoner’s Dilemma

Answer 23

The risk seems crazy to take enhancing drugs: heart problems, liver damage, roid rage
Athletes compete with each other, and none can be sure the other’s aren’t taking PEDs.
This leads to increase in PED’s

Question 24

Bilateral monopoly

Answer 24

When a monopoly and a monopsony is in the same market

Question 25

Reserve clause

Answer 25

held players hostage

Question 26

Restricted free agent

Answer 26

players can solicit offers from other teams, but if player accepts an offer, his current team gets rights

Question 27

Unrestricted free agent-

Answer 27

player can sign with any team that makes him an offer no strings attached

Question 28

pros of unions

Answer 28

Important outlet for workers Reducing workplace conflict Counter monopsony power

Question 29

Cons of unions

Answer 29

Limit employment which harms economy Puts domestic producers at a disadvantage(outsourcing)

Question 30

Binding attribution

Answer 30

parties involved have a mutual agreement suggested by an arbitrator. (don’t get legalities involves)

Question 31

Final offer arbitration-

Answer 31

The arbitrator can only select one of the two proposals, not institute their own.(MLB does this in hopes of avoiding constant arbitration cases)

Question 32

Economic concerns regarding discrimination

Answer 32

Equal access to work- players with equal skill should have equa opportunity no matter their race ex:if two player(one white and black) of equal skill compete for a job and the job systematically goes with the white player Equal pay for equal work- equal productive workers in identical positions should receive the same amount of pay

Question 33

Becker’s model of discrimination

Answer 33

How much someone is willing to pay to discriminate allows us to think of discrimination Ex: an owner pays a white player $1 million more than an identical hispanic player, the owner values discrimination at $1 million. This values someone's Taste for discrimination

Question 34

Statistical discrimination-

Answer 34

the use of group averages to judge an individual's productivity level Has to do with lack of informations, rather than other types of discrimination that has nothing to do with information Ex: assuming a black player is better at basketball because he’s black

Question 35

Discrimination vs prejudice

Answer 35

Prejudice is A feeling or emotion while discrimination is an action

Question 36

Equation for discrimination

Answer 36

wage(1+di) di=coefficient for discrimination of owner

Question 37

Employees who discriminate

Answer 37

view their actual wage as being lowered when the player is added.

Question 38

Consumer discrimination-

Answer 38

(not eliminated by market forces over time) harms target groups but does not affect those doing the discrimination.

Question 39

Positional discrimination-

Answer 39

when players are underrepresented or overrepresented at certain positions due to their race. Leads to role discrimination

Question 40

role discrimination-

Answer 40

steering minority players towards specific positions. If minorities aren’t encouraged to try all positions at a young age, then positional discrimination is reinforced at a professional level.

Question 41

Regression

Answer 41

a measure of relationship of one variable and corresponding values of other variables

Question 42

Independent vs dependent variables

Answer 42

dependent variable depends on the independent variable

Question 43

ordinary least squares(OLS):

Answer 43

Minimizes the sum of squared distances between the line and data points.