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Loss Aversion, Team Relocations, and Major League Expansion

Author

Listed:
  • Brad R. Humphreys

    (West Virginia University, College of Business and Economics)

  • Li Zhou

    (University of Alberta)

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.

Suggested Citation

  • Brad R. Humphreys & Li Zhou, 2014. "Loss Aversion, Team Relocations, and Major League Expansion," Working Papers 14-17, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:14-17
    as

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    File URL: http://busecon.wvu.edu/phd_economics/pdf/14-17.pdf
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    References listed on IDEAS

    as
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    6. Dennis Coates & Brad R. Humphreys, 2008. "Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?," Econ Journal Watch, Econ Journal Watch, vol. 5(3), pages 294-315, September.
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    More about this item

    Keywords

    Endowment Effect; Loss aversion; major league sports; bargaining;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - 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

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