Thursday, November 10, 2011

The main economic benefit of baseball: we love it

From "The Sports Economist," here's commenter "bobby" with a very good comment:

I find it mildly distressing that almost all of the discussion about economic impacts of sporting events is about rectangles with rarely if ever a discussion of triangles. I was always trained that welfare was measured by consumer and producer surplus, not expenditures, but then what do I know?


I guess the idea that people are happier with a baseball game than a movie doesn’t mean much anymore, and its downright silly to suggest that a baseball game makes a place better off because people could have gone to a movie instead.

What he's saying is that if you're trying to measure the benefit of something, you measure it by "consumer surplus." That's the economic term for the difference between what you have to pay for something, and the maximum price you'd be willing to pay for it.

A lot of things have a huge consumer surplus. Take, for instance, a headache pill. An ibuprofen tablet costs only a few pennies -- a dime, tops. How much would you be willing to pay to make your headache go away? It's at least a dollar -- probably more, but at least a dollar. That means that every time you buy an Advil for ten cents, you're making a "profit" of at least 90 cents.

An easier way of looking at it is this: if the product you're using didn't exist, how much worse off would you be? That's consumer surplus.

There's consumer surplus in almost everything you pay for. That's because, if you didn't buy it, you'd have to buy something else you liked less. If there were no Tim Hortons, I'd have to buy Starbucks coffee, which I don't like as much. If my favorite restaurant closed, I'd have to go to my second favorite, which is still good, but not as good as my favorite. And so on.

Now, for sports: how much consumer surplus do you get from sports? How much worse off would you be if there were no baseball, or hockey? For most of you reading this, your answer is probably -- a lot worse. You'd have more money, because you wouldn't be spending on trading cards and tickets and Bill James Baseball Abstracts, but, that barely matters, compared to how much less interesting your life would be without baseball. The same is probably true for your favorite team, if you have one. My life would be a lot worse without the Toronto Maple Leafs, even if all the other teams were still around.

So Bobby's argument is quite correct. The most important economic consideration, when it comes to pro sports is how much better off people are because of it. Why, then, in almost every discussion of sports and economics, is this not a consideration?

One reason, as Victor Matheson says here, is that economists are often reacting to questions from non-economists, or politicians, who are more concerned about GDP and job creation than about the intrinsic value of sports as entertainment. When a candidate for office talks about building a new stadium to attract a team, the economic arguments are about the monetary values of the transactions it will create, rather than how happy the fans will be. And so, that's what the economists have to respond to.

Most of the time, though, the answer is that a new sports team creates only negligible zero jobs on net, and little increase in GDP. Because, after all, if the money didn't get spent on sports, it would get spent on something else. If you live in Montreal and don't have the Expos any more, you'll go to a movie, or go out to dinner instead.

That's true for almost anything. If medicines were made illegal, GDP wouldn't change much in the long term -- you'll take the dime you would have spent on an Advil, and spend it on something else instead. The main reason a headache pill is a good thing is not that it adds 10 cents to total output, but that its benefit is way, way higher than its cost.

What I'd like to see, in economic analysis of sports, is some kind of estimate of how much it improves people's lives. It's a lot. Matheson says in his post that there have been some attempts to quantify consumer surplus, but his example is only among people who pay for tickets. But what about everything else? Most of us benefit from baseball far, far more than just our ticket purchases. We watch games on TV, write blogs about them, analyze them, talk about them at the water cooler. Sports are a big part of the fabric of most of our lives, and having a team in our city to root for is a huge unmeasured happy benefit.

I have argued before that if it makes sense for government to subsidize things like public broadcasting (CBC, BBC, NPR, etc.), it should also make sense for it to subsidize a hockey team, on a cost/benefit basis. But I can't show you any evidence (other than back-of-the-envelope) that that's the case, unless and until the economists start listening to bobby, and get to work on showing the size of the benefit.

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At Thursday, November 10, 2011 3:51:00 PM, Anonymous Alex said...

This should be possible. There are people who research happiness; they pop up on the freakonomics blog relatively often. You would expect that cities with sports teams should have big drops in happiness relative to other cities when their sport is on strike, or maybe even when the team is doing poorly. The analysis could be limited to the period before games were broadcast widely to cut down on the TV issue.

At Thursday, November 10, 2011 4:54:00 PM, Blogger J-Doug said...

Somewhat off point, but the Corporation for Public Broadcasting receives ~$400m/yr from taxpayers. Recipients of CPB funds must hold open meetings, keep their books open, maintain a community advisory board, and reveal all political and donor activities. I'd sure love it if subsidized teams were held to the same standard.

At Thursday, November 10, 2011 7:31:00 PM, Blogger doc said...

I don't know what one would find if one did attempt to measure total surplus (incidentally, why ignore producer surplus in this?). But the answers might be surprising. There's been an extended discussion on the Marginal Revolution blog ( (which is probably all archived now) about the size of the consumer surplus created by the internet. Some of the posters and commenters cay it's huge, others say, not so much.

I'd agree that (given the axiom of revealed preference) there is (has to be) some positive consumer surplus from baseball. But the magnitude of that surplus need not be that large, just positive, for the existence of baseball to make us better off.

It's an interesting research question, and doing the measurement would difficult. It's make a good dissertation topic for some ambitious econ PhD student...


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