Sunday, December 11, 2005

Having a plush office

Matt Yglesias launches into the whole should-college-athletes-get-paid question, and in comments people get caught up on the question whether college athletic programs make money. Sometimes that is relevant sometimes it is not. When it is claimed that college athletics is useful because it brings in donations or makes money it is useful to point out that this is not empirically accurate. When someone wonders whether college athletes could be paid and it is pointed out that athletic programs don't make money hence it is not affordable, this is not useful because big time athletic programs are not run as profit-maximizing enterprises (is anything run to maximize profits?). Rather, they maximize the luxury of coaches and players and the excitement surrounding it. This is not the same as maximizing profit. Because administrators have no reason to make money -- it would just go back to the univeristy -- they spend it by making their lives, and the lives of their athletes, more pleasant. Entirely rational behavior. But you cannot infer anything about what the actual money spending capabilies are from the profit-loss statement because you are working with a "business" that works with a soft budget constraint and has a major principle-agent problem with respect to maximizing profit.


Anonymous Maria said...

The other problem with the obsession with focusing on profits from the college athletes is that there are other benefits accruing to a college from the success and existence of the athletic teams, for which the athletes should earn some compensation. Doing my IO paper on the economics of education, I've come across some studies that tie a university’s football history with its freshman retention and graduation rates. In addition the winning record of a university’s football team is positively related to the number of applications for admittance received by that university: an increase in winning percentage by 0.2 will lead to an average 1.3% increase in applicants the following year, acc. to RG Murphy in a 1994 article. This makes Swarthmore's decision to cut the football team seem even more rational.

4:19 AM  

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