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Fundamentals and Optimal Institutions: The case of US sports leagues


  • Martín González Eiras

    () (University of Copenhagen)

  • Nikolaj A. Harmon

    () (University of Copenhagen)

  • Martín Rossi

    () (Department of Economics, Universidad de San Andres)


To shed light on the relation between fundamentals and adopted institutions we examine institutional choice across the \Big Four" US sports leagues. Despite having very similar business models and facing the same economic and legal environment, these leagues exhibit large differences in their use of regulatory institutions such as revenue sharing, salary caps or luxury taxes. We show, theoretically and empirically, that these institutional di erences can be rationalized as optimal responses to di erences in the fundamental characteristics of the sports being played. This provides a cautionary tale against trying to transplant successful institutions across different economic settings.

Suggested Citation

  • Martín González Eiras & Nikolaj A. Harmon & Martín Rossi, 2017. "Fundamentals and Optimal Institutions: The case of US sports leagues," Working Papers 128, Universidad de San Andres, Departamento de Economia, revised Jan 2017.
  • Handle: RePEc:sad:wpaper:128

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    References listed on IDEAS

    1. Wladimir Andreff & Stefan Szymanski (ed.), 2006. "Handbook on the Economics of Sport," Books, Edward Elgar Publishing, number 3274.
    2. Bizzozero, Paolo & Flepp, Raphael & Franck, Egon, 2016. "The importance of suspense and surprise in entertainment demand: Evidence from Wimbledon," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 47-63.
    3. Aronow, Peter M. & Samii, Cyrus & Assenova, Valentina A., 2015. "Cluster–Robust Variance Estimation for Dyadic Data," Political Analysis, Cambridge University Press, vol. 23(04), pages 564-577, September.
    4. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, September.
    5. Helmut M. Dietl & Markus Lang & Stephan Werner, 2010. "The Effect of Luxury Taxes on Competitive Balance, Club Profits, and Social Welfare in Sports Leagues," International Journal of Sport Finance, Fitness Information Technology, vol. 5(1), pages 41-51, February.
    6. Wladimir Andreff & Stefan Szymanski, 2006. "Handbook on the Economics of Sport," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270122, HAL.
    7. El-Hodiri, Mohamed & Quirk, James, 1971. "An Economic Model of a Professional Sports League," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1302-1319, Nov.-Dec..
    8. repec:hal:journl:halshs-00270122 is not listed on IDEAS
    9. Martín Rossi & Christian Ruzzier, 2015. "Career Choices and the Evolution of the College Gender Gap," Working Papers 120, Universidad de San Andres, Departamento de Economia, revised Mar 2015.
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    More about this item


    regulations; institutional choice; sport economics; win probability;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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