Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, December 03, 2004

The D.C. Stadium Saga

Both Skip Sauer at The Sports Economist and Phil Miller at Market Power have had several interesting recent postings on the economics of sports.

Sauer and Miller both write about the D.C. stadium on-going saga. It appears that Washington Times columnist Loverro disagrees with economists who find that the economic benefits of have a major league sports team are very small, calling one a "pencil-necked geek". I guess he wouldn't like this piece put out by the C.D. Howe Institute, in which I argued that the local multiplier might even be negative for major league sports teams. It looks to me as if most journalists and politicians who get this wrong ignore two important phenomena:
  1. The diversion effect. Much of the new spending attributed to the presence of the sports team is diverted from elsewhere in the local economy. It isn't net new spending in the local economy, but the diversions are often wide-spread and not so easily identifiable.
  2. The marginal propensity to import. Even if people come into the area and spend a lot of money, much of what they spend just leaks back out of the local economy; it doesn't stick around to increase local demand for goods and services. This is especially true of incomes earned by players and owners.

The sizes of these two effects depend on the specification of the geographic size of the local economy, but they work in opposite directions: if the area is small, the diversion effect is small but the import effect is very large. If, though, the geographic area of the local economy is defined to be larger and more inclusive, the import effect gets smaller, while the diversion effect gets larger.

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