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Loss Aversion, Team Relocations, and Major League Expansion

Brad Humphreys and Li Zhou ()

No 2014-3, Working Papers from University of Alberta, Department of Economics

Abstract: Professional sports teams receive large public subsidies for new facility construction. Empirical research suggests that these subsidies cannot be justified by tangible or intangible economic benefits. We develop a model of bargaining between local governments and teams over subsidies that includes league expansion decisions. The model features loss aversion by fans that captures lost utility when a team leaves a city. The model predicts that teams exploit this loss aversion to extract larger than expected subsidies from local governments, providing an explanation for these large subsidies and highlighting the importance of anti-trust exemptions in enhancing teams' bargaining positions.

Keywords: Endowment Effect; Loss aversion; major league sports; bargaining (search for similar items in EconPapers)
JEL-codes: D42 H25 L12 L83 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-03-02
New Economics Papers: this item is included in nep-spo, nep-upt and nep-ure
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