Alexander Rathke

The Effect of Salary Caps in Professional Team Sports on Social Welfare

Abstract This paper provides a theoretical model of a team sports league 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.

The Combined Effect of Salary Restrictions and Revenue Sharing in Sports Leagues

Many major sports leagues are characterized by a combination of cross-subsidization mechanisms like revenue-sharing arrangements and payroll restrictions. Up to now, the effects of these policy tools have only been analyzed separately. This article provides a theoretical model of a team sports league and analyzes the combined effect of salary restrictions (caps and floors) and revenue sharing. It shows that the effect on club profits, player salaries, and competitive balance crucially depends on the mix of these policy tools. Moreover, the invariance proposition does not hold even under Walrasian-conjectures if revenue sharing is combined with a salary cap or floor.

Economics and the Summer Olympics An Efficiency Analysis

Applying stochastic frontier analysis, we estimate distance to frontier of countries in the production of success at the Summer Olympic Games since the 1950s. Our measures of success are medal shares and a broader concept including Olympic diplomas. Following Bernard and Busse (2004), population and GDP are used as inputs. Although the impact of GDP is always positive, we show that the sign of the population effect depends on wealth and population size of a country. The results show that the spread of distance to frontier is very wide over time, across countries, gender, and sports: not only resource endowment matters but also utilization of resources. These differences can be seen as caused by differences in financial support, training methods, organization, or culture. Using a method proposed by Battese and Coelli (1995), the authors build on well-documented results in the literature and identify the channels through which planned economies and host countries generate Olympic success. The method allows shedding light on aspects of recent history, such as the consequences of the breakdown of the former Soviet Union.

Salary Cap Regulation in Professional Team Sports

This paper analyzes the effects of a percentage-of-revenue salary cap in a team sports league with win-maximizing clubs and flexible talent supply. It shows that a percentage-of-revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage-of-revenue cap always enhances financial stability of win-maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator.

Malthus was right: new evidence from a time-varying VAR

Although Unified Growth Theory presumes the existence of the Maltusian mechanism in pre-industrial England recent empirical studies challenged this assumption. This paper studies the interaction of vital rates and real wages in the period from 1540 to 1870 in England. We employ time-varying VARs, an approach which addresses potential shortcomings such as parameter instability and declining volatilities in the previous literature. In contrast to recent studies, the main Malthusian mechanisms - the preventive and the positive check - were both at work until the mid-19th century. The preventive check was decreasing and the positive check increasing in importance. Most remarkably, the positive check dominated after the 1750s. The results indicate that instead of disappearing before the advent of the industrial revolution, the Malthusian mechanism rather changed its face over time.

Economics and Olympics: An Efficiency Analysis

Applying stochastic frontier analysis, we estimate the importance of sports in society as technical efficiency of countries in the production of Olympic success since the 1950s. Our measures of success are medal shares and a broader concept including Olympic diplomas. Following Bernard and Busse (2004), population and GDP are used as inputs. While the impact of GDP is always positive, we show that the sign of the population effect depends on wealth and population size of a country. The results show that the spread of importance is very wide over time, across countries, gender, and sports. These differences can be seen as caused by differences in financial support, training methods, organization, or culture. Using the method proposed by Battese and Coelli (1995), we confirm the result well documented in the literature that planned economies and host countries are more successful than others in terms of Olympic success (e.g. Bernard and Busse, 2004). The method allows to shed light on important aspects of recent sport history, such as the consequences of the breakdown of the former Soviet Union.

The Economic Consequences Of Foreigner Rules In National Sports Leagues

This paper provides a contest model of a professional team sports league and analyzes the impact of a restriction on foreign players. It shows that a league with binding restrictions on foreign talent for all clubs is more balanced than a league without binding restrictions on foreign talent. Moreover, the wage level of domestic (foreign) talent is higher (lower) in a league with a binding restriction on foreign players. Finally, a tighter restriction on foreign players increases profits of all clubs.

Overvalued: Swedish Monetary Policy in the 1930s

This paper reconsiders the role of monetary policy in Sweden’s strong recovery from the Great Depression. The Riksbank in the 1930s is sometimes seen as an example of a central bank that was relatively innovative in terms of the conduct of monetary policy. To consider this analytically, we estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. We find that the model captures the key dynamics of the period surprisingly well. Importantly, our findings suggest that Sweden avoided the worst excesses of the depression by conducting conservative rather than innovative monetary policy. We find that, by keeping the Swedish krona undervalued to replenish foreign reserves, Sweden’s exchange rate policy unintentionally contributed to the Swedish growth miracle of the 1930s, avoiding a major slump in 1932 and enabling the country to benefit quickly from the eventual recovery of world demand.

OVERVALUED: SWEDISH MONETARY POLICY IN THE 1930s: SWEDISH MONETARY POLICY IN THE 1930S

This paper reconsiders the role of monetary policy in Sweden’s strong recovery from the Great Depression. The Riksbank in the 1930s is sometimes seen as an example of a central bank that was relatively innovative in terms of the conduct of monetary policy. To consider this analytically, we estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. We find that the model captures the key dynamics of the period surprisingly well. Importantly, our findings suggest that Sweden avoided the worst excesses of the depression by conducting conservative rather than innovative monetary policy. We find that, by keeping the Swedish krona undervalued to replenish foreign reserves, Sweden’s exchange rate policy unintentionally contributed to the Swedish growth miracle of the 1930s, avoiding a major slump in 1932 and enabling the country to benefit quickly from the eventual recovery of world demand.

Konjunkturanalyse: Prognose 2016/2017, Preissenkungen haben Einbruch abgefedert – Abwertung hellt Aussichten auf

This text contains the autumn forecast 2015 of the KOF Swiss Economic Institute at ETH Zurich, released on 1 October 2015. The first part discusses recent economic developments abroad and in Switzerland, and presents the main forecast results across the various sectors of the economy. In the second part, detailed forecasts for Switzerland follow, split up into the main demand components of GDP. We expect the Swiss economy to grow by 0.9% in 2015, 1.4% in 2016 and 1.8% in 2017, respectively, representing a small upward revision compared with our last forecast from June 2015. In particular, the positive economic development in Europe and the depreciation of the Swiss franc during the second half of 2015 are specified as reasons for this adjustment. The negative price developments during the first half of 2015 are also newsworthy, as both the general price level and sales prices in certain sectors are falling.