The Effect of Salary Caps in Professional Team Sports on Social Welfare
Markus Lang () and
Alexander Rathke ()
No 72, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)
Increasing financial disparity and spiralling wages in European football have triggered a debate about the introduction of salary caps. This paper provides a theoretical model of a team sports leagues and studies the welfare effect of salary caps. It shows that salary caps will increase competitive balance and decrease overall salary payments within the league. The resulting effect on social welfare is counter-intuitive and depends on the preference of fans for aggregate talent and for competitive balance. A salary cap that binds only for large market clubs will increase social welfare if fans prefer aggregate talent despite the fact that the salary cap will result in lower aggregate talent. If fans prefer competitive balance, on the other hand, any binding salary cap will reduce social welfare.
Keywords: Salary Caps; Social Welfare; Competitive Balance; Team Sports League (search for similar items in EconPapers)
JEL-codes: C72 D6 L83 M21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-spo
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Journal Article: The Effect of Salary Caps in Professional Team Sports on Social Welfare (2009)
Working Paper: The Effect of Salary Caps in Professional Team Sports on Social Welfare (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:iso:wpaper:0072
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