Loss Aversion, Team Relocations, and Major League Expansion
AbstractProfessional 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 InfoPaper provided by University of Alberta, Department of Economics in its series Working Papers with number 2014-3.
Length: 28 pages
Date of creation: 02 Mar 2014
Date of revision:
Endowment Effect; Loss aversion; major league sports; bargaining;
Other versions of this item:
- Brad R. Humphreys & Li Zhou, 2014. "Loss Aversion, Team Relocations, and Major League Expansion," Working Papers 14-17, Department of Economics, West Virginia University.
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-22 (All new papers)
- NEP-SPO-2014-03-22 (Sports & Economics)
- NEP-UPT-2014-03-22 (Utility Models & Prospect Theory)
- NEP-URE-2014-03-22 (Urban & Real Estate Economics)
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