Helmut Dietl () (Institute for Strategy and Business Economics, University of Zurich) Egon Franck () (Institute for Strategy and Business Economics, University of Zurich) Markus Lang () (Institute for Strategy and Business Economics, University of Zurich) Alexander Rathke () (Institute for Empirical Research in Economics, University of Zurich)
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This paper studies the welfare effect of a percentage-of-revenue salary cap in a European context with win-maximizing clubs. It shows that a percentage-of-revenue cap increases competitive balance and decreases the overall salary payments in the league, therefore contributing to financial stability. A percentage-of-revenue cap will always increase social welfare if the weight on aggregate club surplus in the welfare function is sufficiently high. Additionally, if fans’ preferences for aggregate talent are sufficiently high then the percentage-of-revenue cap will also increase social welfare, no matter how much weight the league puts on financial stability.
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number
0086.
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