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Loss Aversion, Team Relocations, and Major League Expansion

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  • Humphreys, Brad

    ()
    (University of Alberta, Department of Economics)

  • Zhou, Li

    ()
    (University of Alberta, Department of Economics)

Abstract

Professional sports teams receive large public subsidies for new facility construction. Empirical research suggests that these subsidies cannot be justified by tangible or intangible economic benefits. We develop a model of bargaining between local governments and teams over subsidies that includes league expansion decisions. The model features loss aversion by fans that captures lost utility when a team leaves a city. The model predicts that teams exploit this loss aversion to extract larger than expected subsidies from local governments, providing an explanation for these large subsidies and highlighting the importance of anti-trust exemptions in enhancing teams' bargaining positions.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2014-3.

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Length: 28 pages
Date of creation: 02 Mar 2014
Date of revision:
Handle: RePEc:ris:albaec:2014_003

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Keywords: Endowment Effect; Loss aversion; major league sports; bargaining;

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  1. Dennis Coates, 2007. "Stadiums And Arenas: Economic Development Or Economic Redistribution?," Contemporary Economic Policy, Western Economic Association International, vol. 25(4), pages 565-577, October.
  2. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
  3. Bruce K. Johnson & Peter A. Groothuis & John C. Whitehead, 2000. "“The Value of Public Goods Generated by a Major League Sports Team: The CVM Approach,”," Working Papers 0014, East Carolina University, Department of Economics.
  4. Dennis Coates & Brad R. Humphreys, 2008. "Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?," Working Papers 0818, International Association of Sports Economists & North American Association of Sports Economists.
  5. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  6. Alexander, Donald L. & Kern, William & Neill, Jon, 2000. "Valuing the Consumption Benefits from Professional Sports Franchises," Journal of Urban Economics, Elsevier, vol. 48(2), pages 321-337, September.
  7. Angelo Cocco & J. C. H. Jones, 1997. "On going south: the economics of survival and relocation of small market NHL franchises in Canada," Applied Economics, Taylor & Francis Journals, vol. 29(11), pages 1537-1552.
  8. Philip K. Porter & Christopher R. Thomas, 2010. "Public Subsidies and the Location and Pricing of Sports," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 693-710, January.
  9. Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1133-1165, November.
  10. Aju J. Fenn & John R. Crooker, 2009. "Estimating Local Welfare Generated by an NFL Team under Credible Threat of Relocation," Southern Economic Journal, Southern Economic Association, vol. 76(1), pages 198-223, July.
  11. Che, XiaoGang & Humphreys, Brad, 2012. "Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America," Working Papers 2012-23, University of Alberta, Department of Economics.
  12. Jeffrey G. Owen & William J. Polley, 2007. "Cities and Professional Sports Teams: A Dynamic Bargaining Model," International Journal of Sport Finance, Fitness Information Technology, vol. 2(2), pages 64-78, May.
  13. N. Edward Coulson & Rodney Fort, 2010. "Tax Revisions Of 2004 And Pro Sports Team Ownership," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 464-473, October.
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