Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs

Helmut Max Dietl, Egon Franck (), Markus Lang () and Alexander Rathke ()
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Egon Franck: Institute for Strategy and Business Economics, University of Zurich

No 825, Working Papers from International Association of Sports Economists

Abstract: This paper studies the welfare effect of a percentage-of-revenue salary cap in a European context with win-maximizing clubs. It shows that a percentage-of-revenue cap increases competitive balance and decreases the overall salary payments in the league, therefore contributing to financial stability. A percentage-of-revenue cap will always increase social welfare if the weight on aggregate club surplus in the welfare function is sufficiently high. Additionally, if fans’ preferences for aggregate talent are sufficiently high then the percentage-of-revenue cap will also increase social welfare; no matter how much weight the league puts on financial stability.

Keywords: Salary Caps; Social Welfare; Competitive Balance; Team Sports League (search for similar items in EconPapers)
JEL-codes: L83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab, nep-mic and nep-spo
Date: 2008-08
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http://www.holycross.edu/departments/economics/ReP ... letal_SalaryCaps.pdf (application/pdf)

Related works:
Working Paper: Welfare Effects of Salary Caps in Sports Leagues with Win-Maximizing Clubs (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:spe:wpaper:0825

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