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Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs

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Author Info
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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Abstract

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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File URL: http://www.isu.unizh.ch/static/ISU_WPS/86_ISU_full.pdf
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Publisher Info
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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Length: 22 pages
Date of creation: 2008
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Handle: RePEc:iso:wpaper:0086

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Related research
Keywords: Salary Caps Social Welfare Competitive Balance Team Sports League

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Find related papers by JEL classification:
L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Recreation; Tourism

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References listed on IDEAS
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  1. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, 09. [Downloadable!] (restricted)
  2. Késenne Stefan, 2003. "The salary cap proposal of the G-14 in European football," Working Papers 2003018, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
  3. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
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This page was last updated on 2008-10-11.


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