Presentation on theme: "Section B Managerial and individual decision problems"— Presentation transcript:
1 Section B Managerial and individual decision problems Externalities in consumption and productionApplication to sport and exerciseBy the end of this session you should be able to explain what is meant by the economic concept of an externality and discuss efficiency and policy implications of externalities in relation to sport, exercise and the wider sports sector.
2 Application: Positive externalities and sport The wider social benefits of:Participation in sports and fitness activitiesThe sports sector: success of elite sports; urban regeneration and sports developments; mega-events; the financial contribution of the sports industry.
3 Application: Positive externalities and sport ReadingOverview: Grimes, P, Register, C. and Sharp, A Economics of Social Issues, McGraw Hill. Chapters 6 and 9For more detailed discussions see e.g.:Oughton, C and Tacon, R (2006) The Economic and Social Impact of Sport, Report for the Economic and Social Research Council. (on webct)DCMS/Strategy Unit (2002) ‘Why do we care: benefits and the role of the government’, in Game Plan: A strategy for delivering Government’s sport and physical activity objectives, pp , London: Strategy Unit: (on webct)Coalter(2007 A wider social role for sport: Who’s keeping the score, RoutledgeGratton and Taylor (2001) Economics of sport and recreation, Taylor and Francis
4 Participation in sports and fitness activities and the sports sector Potential benefits of participation in sport and physical activityPrivate benefits to the individual (internal) e.g. psychological and physical health benefitsWider economic and social benefitsHealth, education, crime reduction, social inclusionMega events and the economic contribution of the sectorSport and fitness as economic public goods and the extra (external) benefits of sports beyond personal satisfactionPolicy implications
5 Private benefits of participation Personal pleasure, satisfaction and a better social life - individual motives for participationnot sufficient as an argument for government support as there are alternatives that can do the same thing e.g. music, theatreBut regular physical activity can yield a range of physical and mental health benefits to the individuale.g. reduced risk of obesity; cardiovascular diseases (e.g. related to high blood pressure) and strokes; some forms of cancers; non-insulin dependent diabetes; osteoarthritis and osteoporosis; anxiety and depressionWider social benefits – externalities- can follow from these individualised benefitsImproved health; Individual motive and wider social benefits e.g. lower health costsA collective feel-good factor at a national level if, for example, national teams do wellImproved educational outcomes; individual and social benefitsCrime reduction; social benefitSocial inclusion; individual and social benefitsEconomic benefits; social benefitsSee DCMS/Strategy Unit (2002) ‘Why do we care: benefits and the role of the government’, in Game Plan: A strategy for delivering Government’s sport and physical activity objectives, pp , London: Strategy Unit
6 Wider social benefits (positive externalities) of participation: health Improved health of individuals is also good for society – wider benefits of a more physically active populationReduction in health care costsFewer days off work; a more productive workforceGains from fewer premature deaths; reduction in lost earnings of individuals and employersAll the standard positive externalities linked to healthImproved health; Individual motive and wider social benefits e.g. lower health costs
7 Economic effects of health effects Game Plan (DCMS/Strategy Unit, 2002:42) estimates that health related costs constitute the largest single argument for government promotion of increased physical activityCost of inactivity = £2bln a year in the UKWorking days lost 10,00054,000 premature deathsTotal gain (England) of 10% increase in adult activity £500m per yearComparable estimates in other countries e.g. USA using direct medical cost savingsBut other factors controlled for imprecisely and there are also negative costs of sports participation – due to?Negative costs due to injuries e.g. high risk sports especially for men – but much less a problem re fitness – raises questions with whether sports or simply physical activity should be promoted
8 Other possible external benefits: (1) Education Participation in sport may generate and/or reinforce educational goals by:Exposing students to social relations with achievement orientated peers and educational personnelAttracting under-achieving students to educationIncreasing the visibility and popularity of an individualHelping students to acquire skills and qualities that can improve educational performancee.g. timekeeping, discipline, self-esteem, communication skillsEvidence supports using sport as part of an approach to improving educational attainmentbut difficult to distinguish between the effect of playing sport itself and other factorsE.g. related to the extra attention/mentoring received by children on sports and education related programmeswithout the this sports programs tend not to have educational benefitsImproved educational outcomes; individual and social benefits
9 Other possible external effects: (2) Crime reduction Sport may help to reduce youth crime:Displacement:being somewhere else so not available to commit crime i.e. because involved in sportTherapeutic interventionAntidote to boredom; Enhances self-esteem; Improves cognitive skills; Less scope for participation with delinquent peers; Creating positive relationships with appropriate role modelsEvidence from the USA: success requires an emphasis on non-violence, respect for others, fitness and self-control, confidence, responsibility (Coakley, 1997)But projects are difficult to assess - causal relationships are difficult to isolate, monitoring is difficultImplications;Playing sport is not enough on its own to reduce crimesportis related crime reduction programmes need to be part of a packageCrime reduction; social benefitEvidence is difficult to obtain because causal chains difficult to isolate.Coakley, J., 1997, Sport in society: Issues and controversies, Boston MA: McGraw Hill
10 (3) Social inclusion: sport and community development Sport may be used to help people who are likely to be excluded from community activitiesdeveloping self-esteem, confidence and personal skills or enlarging social networksBut gains may be due simply to extra attention given to disadvantaged groupsAnd some sports activities may have the opposite effect by encouraging social divisions e.g. through local rivalriesSocial inclusion; individual and social benefitsHelping to achieve social cohesion by developing social capital
11 Implications: potential market failures in sports and fitness sector positive externalities/external benefits of sports participation mean market outcomes will be inefficientCause is some distortionViolation of underlying assumptions of competition
12 Implications; positive (consumption) externalities from participation PriceSupply:MCAt q- MB > MC, output too low, case of environmental quality as a public goodat q+ MC >MB – output too high, case of pollution as a negative externality or over harvesting of an open access resourcePrivate demand (benefit): MPBqP: private optimumResources (available to the sports and fitness sector) = Consumption (participation)
13 Positive externalities (social benefits) in consumption PriceSupply: MCExternal benefitsAt q- MB > MC, output too low, case of environmental quality as a public goodat q+ MC >MB – output too high, case of pollution as a negative externality or over harvesting of an open access resourceSocial demand (benefit): MSBMPBqpResources (available to the sports and fitness sector) = Consumption (participation)
14 Inefficient outcome due to positive externalities (social benefits) in consumption: Q* > qp PriceMPBSupply: MCSocial demand (benefit): MSBAt q- MB > MC, output too low, case of environmental quality as a public goodat q+ MC >MB – output too high, case of pollution as a negative externality or over harvesting of an open access resourceqp Q*: social optimumResources (available to the sports and fitness sector) = Consumption (participation)
15 Policy implicationsWithout non-market intervention there will be lower participation in/access to sport and fitness activitiesParticipation needs to be supported
16 Policy implications: support needed to increase consumption to Q. e. g Policy implications: support needed to increase consumption to Q* e.g. lower prices for consumersPriceMPB + subsidyMPBSupply: MCSocial demand (benefit): MSBAt q- MB > MC, output too low, case of environmental quality as a public goodat q+ MC >MB – output too high, case of pollution as a negative externality or over harvesting of an open access resourceqp Q*: social optimumGovernment needs to increase resources/consumption by this amount –e.g. using subsidies
17 Alternative policy: Support for elite sports Elite sports: social benefits associated with a collective feel-good factor if national teams or individuals do wellCan encourage people to participateIndirect positive externalities from individual success at the elite levelEconomic benefits; social benefitsSee DCMS/Strategy Unit (2002) ‘Why do we care: benefits and the role of the government’, in Game Plan: A strategy for delivering Government’s sport and physical activity objectives, pp , London: Strategy Unit
18 Participation and elite sport The ‘virtuous cycle’ of sport
19 Externalities associated with large-scale elite sporting events The virtuous cycle – London Olympics Legacy but no real evidenceNevertheless, interest by potential hosts greater since commercial success of Los Angeles games (1984)Substantial income can be generatedEuro ‘96 generated £120m from overseas visitors - tourismWider benefits claimed = image creation, job creation, regional development, wider infrastructural investment (Barcelona?) exports, tax revenueBenefits also depend on type of sporting eventBut no public money was spent for the Los Angeles gamesMultipliers are overestimated (impacts overstated, leakages underestimated)Costs are underestimated (escalating costs, opportunity costs)Szymanski, 2002,Coalter, 2004,
20 External socio-economic benefits associated with regeneration Major sporting events and new stadia could be a catalyst for regeneration if they help to construct positive Place IdentityE.g. impressions/images of prestige, tourist attractions, community visibilityShort-lived gains (events)Context is important e.g. location of stadia (transport, other commerce)Likely to be more successful if part of a wider development strategy (Baade, 1996)Opportunity costs need to be consideredE.g. some expenditure is substitution, alternative (previous) usesPublic/private balance needs to be appropriate (who benefits?)Redistribution?Baade, 1996, Professional sports as catalysts for metropolitan development, Journal of Urban Affairs, 18(1) 1-17
21 But…..………there are many difficulties in measuring these positive externalities due to problems related to:Measuring sporting inputs,Defining and measuring outcomesintangible and/or difficult to define/measure (Szymanski, 2002; Coalter, 2004)Particular problems in relation to longer term outcomes if monitoring doesn’t continueOverestimated/exaggerated claims? (Crompton, 1995)Multipliers are overestimated, costs underestimatedBids reflect interests of urban elites? (Schimmel, 2002)Outcome interdependenciesother influences need to be controlled forSee e.g. Gratton and Taylor or see Coalter, 2007, A wider role for sport. Whose keeping the score? Routledge)Evidence based practice is not systematic – requires measurement before and after participationMeasurement problems re economic contribution of sport: E.g. grey areas re all sort of sectors and issues (under/over estimates?) such as sports related value of bicycles, public sports broadcasting, voluntary work, attendance at sports events, sports tourism, wider infrastructure
22 And…. Cannot simply accept that sport is ‘good’ Should there be a focus on physical activity rather than sport?Does sport need to be part of a wider range of processes and interventions; ‘sport plus’?Sport as a catalyst for something else?See Sport England (2007) The active people survey http///www.sportengland.org/index/get_resources/research/active_people.htm
23 Other socio-economic benefits associated with the sports sector Contribution of sports sectorOverall importance of sport to the economyEconomic benefits; social benefitsSee DCMS/Strategy Unit (2002) ‘Why do we care: benefits and the role of the government’, in Game Plan: A strategy for delivering Government’s sport and physical activity objectives, pp , London: Strategy Unit
24 The sports economyClaim: greater importance than the creative industries and contributes more via taxation than is given via public subsidiesBut sport not a distinct sector and different assumptions are made re. sport-related outputEvidence for the UKSport Industry Research Centre (2010)Value of sector = £16.7 blnEmployment = 441,0001.8% of all employment in EnglandCambridge Econometrics (2004)sports-related employment in England generated £5.8bln in income and £5.5bln in taxes compared with £660mln in direct grantsSport EnglandEconomic Value of Sport in EnglandGrowth in the sport sector has outstripped the English economy as a whole over the past two decades, according to research published in August 2010.The sport economy’s annual contribution has reached £ billion1 - up 140% in real terms between 1985 and 2008.The research was commissioned by Sport England and carried out by the Sport Industry Research Centre at Sheffield Hallam University. The researchers found that growth between 2005 and 2008 was “driven by investment directed towards the London Olympics and a long-term Sport England policy to increase sport participation”. They argue that sport’s resilience reflects the growing number of people who “consider sports participation as being more a basic need than a luxury”.Other key findings of the report, The Economic Value of Sport in England, include:Consumer spend on sport in England was £ billion in 2008 – up 138% since 19852The number of people with sport-related jobs has also grown, reaching 441,000 – that’s 1.8% of all employment in England3Over three-quarters of these jobs are in the commercial sector, with 13% working in the public sector4The report also compares the value of the sport sector across the country. It finds that London makes the largest contribution, reflecting the size of the capital’s economy. However, per capita spending on sport is greatest in the east of England at £404Full versions of the national and regional reports available at this Sport England web pageFootnotes1 This figure is the gross value added (GVA) by the sport sector in 2008, based on current prices. GVA is calculated as the sum of wages and profits generated in the sector. GVA in 1985 was £3.358 billion, and in 2003 it was £ billion.2 Real term growth. Sport-related consumer spending accounts for 2.3% of overall consumer spending in England.3 Sport-related employment in England has grown from 304,000 in 1985 to 441,000 in 2008.4 339,000 (76%) of sport-related employment was in the commercial sector in The voluntary sector accounted for 11% and the public sector for 13%.
25 Example: Contribution of football See Deloitte’s Football Reviewseason: Total revenue of top 92 clubs = £2.9blm, paid taxes of £1.2blnEPL revenue = £2.3bln (€2.5bln)Combined revenues of the 5 big leagues in Europe = €8.6bnGerman Bundesliga next nearest to EPL with €1.75blnEPL operating profits = £68m (€75m: Bundesliga = €171m)EPL wages= €1.6blnTotal broadcasting revenue = £1,178mTotal matchday revenue = £551m
26 Summary: the economic rationale for government intervention The wider, non-sporting benefits (positive externalities) associated with participation in sport imply that the unregulated market system is unlikely to achieve socially optimal resultsGovernment or other intervention may be neededThe sports sector also has direct positive benefits for economiesBut evidence for wider social benefits from sport other than those associated with health is not systematic
27 Test your understanding Externalities:Explain what is meant by the economic concept of an externality and discuss efficiency and policy implications of externalities in relation to participation in sport and exercise and/or the sports sector.
28 AppendixParticipation and policy: why there is a need for intervention
29 Evidence: Trends in participation Nick Rowe (2004) head of research for Sport England says:“The evidence we have points to stagnation in the levels of participation in sport during the 1990s…..[and] evidence on the social class or participants demonstrates that participation is significantly skewed towards the professional groups, and that these social inequalities have not become any less significant over recent years”Collins (2003a) Sport and social exclusion, London: RutledgeCollins (2003b) ‘Do we still believe in sport for all?’ Recreation 62.1, ppRowe, Adams and Beasley (2004) Driving up participation in sport: the social context, trends, the prospects and the challenges and Coalter, F (2004) Future sports or future challenges to sport? Both in Driving up participation: The challenge for sport, London: UK SportCollins (2004) ‘Sports participation in decline?’ Recreation, November, pp Sport England (2004) A Framework for sport in England, London: Sport EnglandAnother survey is The Active People Survey carried out in in EnglandSport England (2006) Sport England Active People Survey, London: Sport England see
30 Evidence: trends in participation In the UK overall participation in sport/physical activity decreased by around 3% between 1996 and 2002Decline up to 2002 also among the bastions of high participation - the professional and managerial groups and the skilled technical workers with good incomes and limited overtimeThere has been a small upturn since 2005/6 but only 21% of the population took part in moderate intensity sport and physical recreation of at least 30 mins. for 3 days a week and individual sports dominateWhy do you think participation is so low?See Sport England (2007) The active people survey http///www.sportengland.org/index/get_resources/research/active_people.htmSome individual, non-competitive sports have become more popular since 1996 (Coalter, 2004)1.7% increase in participation in swimming43% increase in keep-fit e.g. aerobics21% increase in cycling24% increase in weightsWhy is this?Their individuality is attractive in itselfDecline in sports has mainly been associated with team games although some team sports have become more popular for womenOrganisation is mainly informal – not governed by a body of structures, rules and regulationsPeople can fit participation into their lives – timing is flexibleRelatively low skills requiredPeople are concerned about fitness and health Some activities are ‘lifestyle’ or ‘adventure’ focussed which attract passionate support30
31 Possible explanations for lower participation (1) (Collins, 2003b) Not enough public spending on sportWe spend less compared with many other European countries (but France or Germany and not less than the USA or RussiaWe are not spending enough to maintain the public infrastructureSport England estimate that £110m a year is needed to just maintain existing facilities – to update them could need twice this amount
32 Possible explanations for lower participation (2) (Collins, 2003b) The difficulty of recruiting voluntary labourThe work requires more time, training and the standards are higherPeople want to play for longer rather than become coaches, officials etcNew money from the lottery and the government goes mainly to elite performers and schools leaving out the majority of adultsLonger working hours, increasing pressure of workPrice increases
33 Policy implicationsWithout non-market intervention participation in/access to sport and fitness activities is not socially efficient implying a case for:government support to raise participation in and access to sport and sport related activitiese.g. support sport to indirectly achieve specific social benefits (targeted projects) e.g. Playing for Success and Riding for the DisabledIntervention by non-profit making organisationsWillingness to pay reflected by donations e.g. the lottery and good causesBut where should government/NGO support be directed?Lower participation than socially optimal E.g. because there are inefficient opportunities for participation in sport due to under-supply of sports related facilitiesBut for government intervention/spending to be optimal it needs to determine society’s willingness to pay as there are opportunity costsE.g. using contingent valuation methods, political processes (Voting)Playing for success established out-of-school study (i.e. study centres) at football clubs and other sports grounds funded by government and private sector e.g. the clubs. Began in = educational support/sport developmentRiding for the disabled organises riding as a therapeutic activity
34 Policy implications (see DCMS/Strategy Unit, 2002) DCMS, 2002, Game plan: A strategy for delivering government’s sport and physical activity objectives, DCMS/Strategy UnitMore money should be spent on facilities and staffing them? (Supply side)Improving existing facilities – make them more effective e.g. use schools, increase services (crèches), refurbish - Construct new facilities (more expensive) - Train staff/coachesOvercome barriers to access (Demand side)Motivation: behavioural change; Time: flexible hours; Cost: admission, equipment - Support/subsidies to poorer people to enable them to pursue sport); informationGiven the relative success of individual sports should policy focus on participation rather than competition and winning? What do you think?34
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