Economics of Sport Flashcards
(10 cards)
Comparative Advantage
Comparative advantage is when one economy or individual can produce a good or service at a lower opportunity cost than another. For example, Babe Ruth, absolute advantage in pitching and hitting, used him as a hitter with a higher comparative advantage (hit the jackpot)
Economies should specialise where they have comparative advantage, e.g. Australia in services.
Moneyball
Shorthand for the use of data in sports to determine
What is undervalued and which players cost less than they should
For example, the undervaluation of black athletes controlling for performance
Limitations
What is undervalued changes as more teams use moneyball techniques (e.g. on-base percentage)
Reapplication
Undervalued stocks
Positive externalities
Positive externalities; when a consumer benefit from an activity or good they do not purchase, QOL or consumer surplus benefit but not captured in market transaction
Spirit and community
Identity and commonality
Public Goods
Workers have incentives to vary effort at different points in contract cycle
Increase before a contract is signed, reduce after a multi-year contract is secured
Contract related incentives
Regression analysis links pay and performance.
Better performers have higher salaries and longer contracts
Players strongly rewarded for pre-contract year improvement
Overall performance increases then declines
Individual incentives affect the performance of the teams
Number of wins positively correlated with share of players in contract year and vise versa
Why economics is taking over sports
Analysis of undervalued players
Incentives and labor markets
Discrimination
Siegfried, John and Zimbalist, Andrew. (2006). The Economic Impact of Sports Facilities, Teams and Mega-Events. The Australian Economic Review, 39(4): 420-427.
Why private clubs are built with public funds
70% of funding comes from taxation (regressive)
Sports teams privately owned by super wealthy
Little evidence they stimulate economic growth
Quality of life;
Consumer Surplus; price that a consumer is willing to pay is higher than the price.
Positive externalities; when a consumer benefit from an activity or good they do not purchase, QOL or consumer surplus benefit but not captured in market transaction
Public Goods.
Why they don’t promote economic development
Substitution; set leisure budgets
Leakages and multipliers; money made isn’t spent locally
Budgetary impacts; reallocation of resources
Stiroh, Kevin J. (2007). Playing for Keeps: Pay and Performance in the NBA. Economic Inquiry, 45(1): 145-161.
Workers have incentives to vary effort at different points in contract cycle
Increase before a contract is signed, reduce after a multi-year contract is secured
Contract related incentives
Regression analysis links pay and performance.
Better performers have higher salaries and longer contracts
Players strongly rewarded for pre-contract year improvement
Overall performance increases then declines
Individual incentives affect the performance of the teams
Number of wins positively correlated with share of players in contract year and vise versa
Quitters Never Win, Jennifer Brown (2011)
Do large skill differences reduce worker effort
Empirical analysis data from gold tournament
The presence of a superstar associated with lower performance
Tiger woods presence on other plays, a rise (negative) not associated with risky play and more impacting skilled players. The star must be super.
Hoopenomics
3-point shot let short people play
Increase prevalence yearly, from 1/33 first year to 1 in 3
Where on the court players where maximised
Taking more 3-points is mathematically advantageous (50% more points, even if they lose some its beneficial)
Efficiency matters for teams winning
Sport had to develop players that could make 3 pointers
Loss of beauty associated with 2-pointers
The Olympic bounce
Less viewers of the olympics means they introduce new sports
The olympic bounce
Participation increases after olympics
The year after, they increase, second year they decrease, big spike, dropoff, general increase (low)
Schools and parents invest
Legitimacy and acceptability of sports
Limitations
Dangers of dangerous sports becoming popular
Changes to culture
