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The NCAA Athletics Arms Race: Theory and Evidence

Author

Listed:
  • Adam Hoffer

    (University of Wisconsin, La Crosse)

  • Brad R. Humphreys

    (West Virginia University, College of Business and Economics)

  • Donald J. Lacombe

    (West Virginia University)

  • Jane E. Ruseski

    (West Virginia University, College of Business and Economics)

Abstract

We develop and empirically test a model of intercollegiate athletic department expenditure decisions. The model extends general dynamic models of nonprice competition and includes the idea that nonprofit athletic departments may simply set expenditure equal to revenues. Own and rival prestige is included in the athletic departments' utility function, generating rivalrous interaction. The model predicts that current own and rival investment has multiperiod effects on prestige since investment is durable. We test the model using data from NCAA Division I athletic programs from 2006-2011; the models incorporate spatial autocorrelation that capture dynamic rivalrous interaction. Results support the prediction of both models - NCAA Division I athletic programs appear to engage in dynamic non-price competition in terms of expenditure and spend all revenues generated.

Suggested Citation

  • Adam Hoffer & Brad R. Humphreys & Donald J. Lacombe & Jane E. Ruseski, 2014. "The NCAA Athletics Arms Race: Theory and Evidence," Working Papers 14-29, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:14-29
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    File URL: http://busecon.wvu.edu/phd_economics/pdf/14-29.pdf
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    References listed on IDEAS

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    Cited by:

    1. Allen R. Sanderson & John J. Siegfried, 2015. "The Case for Paying College Athletes," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 115-138, Winter.
    2. Allen R. Sanderson & John J. Siegfried, 2018. "The National Collegiate Athletic Association Cartel: Why it Exists, How it Works, and What it Does," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(2), pages 185-209, March.

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    More about this item

    Keywords

    NCAA; dynamic nonprice competition; revenue theory of costs; athletic arms race;
    All these keywords.

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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