Pages

 

Internalizing externalities: How to reduce injuries in competitive sports

0 comments
It happens all the time: a guy fails to stop at a red traffic light and crashes into another car, causing massive damage to the vehicle and serious injury to the driver.

Now, imagine a world where the offending driver had no responsibility to pay any form of compensation to the victim, and - no matter how substantial the damage - his only punishment was to have his driving license revoked for three weeks.

Crazy? Welcome to the world of professional sport.

Last weekend, Gunners watched in horror as Aaron Ramsey suffered a terrible injury at Stoke. As a direct result of this, he is likely to be unable to play for months, at immense financial cost to Arsenal and the player himself.

Arsenal is prohibited from filling the vacancy quickly by signing a player from another club, and this could well cost them titles and the financial benefits that come with them. Furthermore, players are a football club's most valuable assets*, and in a very direct sense: Ramsey is worth a lot of money to Arsenal, and the club could have even chosen to capitalize on that by selling him to another club. Ryan Shawcrass caused damage to Arsenal's assets much the same way as having taken a baseball bat and wrecked their offices.

Aaron Ramsey seems to have escaped relatively lightly this time, but of course there's always a chance he will never fully recover, losing out on millions of pounds he has been expected to make as a top-flight footballer. And of course there's the psychological trauma he has to go through.

The punishment for the offending player and team? A three week ban on the player participating in club games (ironically, Ryan Shawcross learned of his first England call-up on the very day of the incident)

In econ-speak, this is a classic case of an externality: players and clubs hardly have any incentive to play less agreesively, as they don't have to suffer the consequences of their playing style to the opposing team and its players. Since they don't face the cost, they end up playing more aggressively than is optimal, leading to an inefficiently high level of injuries.

Some people may protest that no player ever intentially injures another, and they would be right. But whether injury is caused intentionally or not is largely irrelevant: it is also the case that no driver ever intends to cause an accident. He merely chooses to take on additional risks by ignoring a stop sign or by driving above the speed limit. Similarly, clubs and players choose to play more aggressively, increasing the probability that any given tackle will cause injury.

FIFA, UEFA and the FA must take action now: any injury caused as a result of foul play should be costed, with the offending club having to pay appropriate compensation to the injured player and his club. This will bring injury rates down, and make the beautiful game better and safer. The current situation is madness.


* Professional sport is really the last example of a labour market where is it OK to buy and sell people; in other areas, such arrangements are strictly illegal: it's called slavery. Even though the status quo is beneficial to both clubs and players, I am deeply perplexed that this is a stable equilibrium, given that all it should take for it to unravel is a single player wanting to declare his contract null and void and bringing the case to a court of law. But this is the subject for a future post.

0 comments:

Post a Comment

  • Greenspan's Cult of Personality... Review topics and articles of economics: Alan Greenspan was a legend in his time and there was no shortage of praise for him back then. For example, who can forget Bob Woodow's 2000 book Maestro: Greenspan's...
  • Yes Tyler, Low Interest Rates Matte... Tyler Cowen is wondering whether the Fed's low interest rates in the early-to-mid 2000s really were that important to the credit and housing boom of the early-to-mid...
  • The Eurozone Crisis: Deja Vu... Review topics and articles of economics: Randal Forsyth sees similarities between the current unfolding of the Eurozone crisis and that of the U.S. financial crisis a few years back:Just as the problem on this...
  • Charles Plosser and the Burden of F... The Economist's Free Exchange blog is shocked to hear this from Federal Reserve Bank of Philadelphia President Charles Plosser:"Since expectations play an important role...
  • Arnold Kling and Expected Inflation... Review topics and articles of economics: What do we know about expected inflation? According to Arnold Kling not much if we look to financial markets:I'm also not convinced that we can read expected inflation...
  • A Paper on Stabilizing Nominal Spen... Given the recent discussion on stabilizing nominal spending as a policy goal I found this article by Evan F. Koenig of the Dallas Fed to be interesting: The article...
  • Why The Low Interest Rates Mattered... Review topics and articles of economics: This is the second of two posts detailing why the Fed's low interest rate policies in the early-to-mid 2000s was one of the more important contributors to the credit and...
  • Why The Low Interest Rates Mattered... This is the first of a two-part follow up to my previous post, where I argued that the Fed's low interest rate policy was a key contributor to the credit and housing...
  • The Stance of Monetary Policy Via t... Review topics and articles of economics: There has been some interesting conversations on the stance of monetary policy in the past few days between Arnold Kling, Scott Sumner, and Josh Hendrickson. Part of...
  • Scott Sumner's New Best Friend:... Joseph Gagnon is calling for $6 trillion more in global monetary easing. This should not be too hard to implement since the Fed is a monetary superpower.Update: The...
 
Review topics and articles of economics © 2011 Internalizing externalities: How to reduce injuries in competitive sports