The Effect of Salary Caps in Professional Team Sports on Social Welfare
AbstractIncreasing financial disparity and spiralling wages in European football have triggered a debate about the introduction of salary caps. This paper provides a theoretical model of a team sports leagues and studies the welfare effect of salary caps. It shows that salary caps will increase competitive balance and decrease overall salary payments within the league. The resulting effect on social welfare is counter-intuitive and depends on the preference of fans for aggregate talent and for competitive balance. A salary cap that binds only for large market clubs will increase social welfare if fans prefer aggregate talent despite the fact that the salary cap will result in lower aggregate talent. If fans prefer competitive balance, on the other hand, any binding salary cap will reduce social welfare.
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Bibliographic InfoPaper provided by University of Zurich, Center for Research in Sports Administration (CRSA) in its series Working Papers with number 0016.
Length: 21 pages
Date of creation: Aug 2007
Date of revision:
Salary Caps; Social Welfare; Competitive Balance; Team Sports League;
Other versions of this item:
- Dietl Helmut M & Lang Markus & Rathke Alexander, 2009. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-23, April.
- Helmut Dietl & Markus Lang & Alexander Rathke, 2007. "The Effect of Salary Caps in Professional Team Sports on Social Welfare," Working Papers 0072, University of Zurich, Institute for Strategy and Business Economics (ISU).
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D6 - Microeconomics - - Welfare Economics
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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