External Social Benefits: During recent years, professional sports have enjoyed
ID: 1234830 • Letter: E
Question
External Social Benefits: During recent years, professional sports have enjoyed an unprecedented boom all across the United States and Canada. Team revenues have skyrocketed with growing fan interest and attendance, thriving broadcast revenues, and flourishing corporate sponsorship support. At the same time, major and minor league teams in baseball, football, basketball, and hockey have come to increasingly rely upon public funding to cover construction costs and maintenance expenses for sport facilities.A.
Describe the nonrival consumption concept as it applies to publicly-funded sport facilities.
B.
Describe the nonexclusion consumption concept as it applies to publicly-funded sport facilities.
C.
In terms of the external social benefits concept, is the equity argument in favor of public support for sport facilities as strong as it is for industrial development in general
Explanation / Answer
A. The distinguishing characteristic of public goods is the concept of nonrival consumption. In the case of public goods, use by certain individuals does not reduce availability for others. However, professional sports entertainment cannot be provided at zero marginal cost. This is despite the fact that many of the costs of sports exhibition are fixed and marginal costs are very small, so long as some excess capacity exists, following a modest increase in the number of fans. Thus, publicly-funded professional sports facilities are not a good example of a public good in the sense of the nonrival consumption concept. B. The concept of nonrival consumption must be distinguished from the nonexclusion concept. A good or service is characterized as nonexclusionary if it is impossible or prohibitively expensive to confine the benefits of consumption to paying customers. Although nonrival consumption and nonexclusion often go hand in hand, theory defines public goods only in terms of the nonrival consumption concept. Because fan attendance and access to professional sports entertainment can be limited, such entertainment does not represent a type of public good from the perspective of the nonrival consumption concept. This is despite the fact that the location of a professional sports franchise in a given city or state have important local external social benefits that can be used to support a public funding argument. C. No, in terms of the external social benefits argument, the public support basis for sports facility funding would not appear as strong as it is for industrial development in general. To be sure, both professional sports facilities and general industrial development produce benefits in terms of increased employment opportunities and increased tax receipt income. However, from an efficiency basis one might argue that the two are comparable. However, from an equity basis it is clear that public funding for professional sports facilities lowers operating costs for team franchises and leads to higher incomes for team owners and players--both among the very most wealthy segments of society. On the other hand, there is no clear reason to suspect that general industrial development funding would focus resulting benefits on very high income individuals. Thus, from an equity standpoint, the public support basis for sports facility funding would not appear to be as strong as it is for industrial development in general.
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