Reference-dependent preferences, team relocations, and major league expansion

Brad Humphreys and Li Zhou ()

Journal of Economic Behavior & Organization, 2015, vol. 109, issue C, 10-25

Abstract: Professional sports teams receive large subsidies, some in excess of $500 million, from local governments for the construction of new facilities. These subsidies cannot be explained by tangible economic benefits, and estimates of the value of intangible benefits also fall short of typical subsidies. In this paper, we incorporate fans’ reference-dependent preferences into a model of the bargaining between local governments and teams. The model predicts that teams use relocation threats to exploit fans’ utility loss from team departures, a negative deviation from the status quo, to extract large subsidies from local governments. Fans’ loss aversion provides an explanation of the current team distribution, and observed team relocation and league expansion decisions in North America. The model also highlights the importance of anti-trust exemptions of the leagues in creating credible relocation threats for existing teams.

Keywords: Reference-dependent preferences; Loss aversion; Bargaining with outside options; Major league sports (search for similar items in EconPapers)
JEL-codes: D42 H25 L12 L83 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268114002960
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:109:y:2015:i:c:p:10-25

DOI: 10.1016/j.jebo.2014.11.007

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().