Do you agree that the market, even sans-patents, supplies too many business innovators?

As to the benefits of viewing the Olympics, let’s remember that televising the Olympics means that other shows can’t be televised at the same time. This is a non-trivial factor. I never watch the Olympics; I get no joy out of it whatsoever. On the other hand, I have to wait even longer to see the next episode of 30 Rock (or any other show). This makes me very frustrated (more than you would expect). I would be willing to pay X dollars to have the Olympics removed and 30 Rock put back in its rightful place.

Lastly, when dictatorships spend alot of money (or use alot of firearms) to train Olympic athletes, they’re artificially inflating the amount of work that everyone in the free world has to do to compete. It’s kind of a jerk thing to do.

Lastly,

The Olympics used to be purely amateur, and still a great many competitors (usually in the “minority” sports) are still amateur. Does this alter the model? In this scenario, we have 3 competitors who have trained hard but expect no financuial return (again slightly stretching the point, but small returns anyway). The public are still willing to pay $3 million, so we seem to have created a lot of value. Maybe this argument falls apart when we account for where the $3 million ends up.

If the amateur status were to return to the Olympics, would we still have the wrong amount of athletes? Would the amount of training match the rewards obtained in terms of “glory” and “satisfaction” for the athletes. The athlete may have worked part time instead of full time (cost) in order to compete and get a medal (reward). He must value the medal above the lost income, to account for the possibility of not winning. He gains. The losing competitors presumably lose overall, but gain some compensatioj for their efforts by taking part. The rest of us have lost the benefit of his economic activity, but gained the pleasure of watching the event. Is this the same as the model above, but the paying public only pay the costs of the venue, so in effect they pay nothing, and the athlete gets nothing? As it is a zero sum game, the number of athletes is imaterial, but much pleasure can still be derived. It becomes difficult here to asses how much they would be prepared to pay the athlete, even though they actually pay him nothing.

In the example, the athlete is willing to forego $1 million of productive activity elsewhere, but what if he was not able to produce $1 million activity? If his productive activity as a cab driver only added up to 0.5$M, then we are all even. I have a feeling this is worked out in the details. Here is another way to put it. Our three athletes in the example could have been cab drivers, and say could have generated $1 million activity. the public are willing to pay $3 million. If the public suddenly become more interested in the sport, and now are prepared to pay $6 million, the amount of economic activity foregone by the athlete is now $2 million. I don’t see how that has come about, since all he has done is still not drive the cab.

Having looked at my comments here, it seems that the maximum gain is always achieved when the amount paid to the athletes is less, reaching its peak at pure amateurism. This sort of makes sense. Why should we pay huge amounts of money for totaly unproductive activity – which I think is part of Steves point. However, I am not sure that the individual effort of the athlete is the true cost here.

‘There is every reason to think that markets provide the right number of taxi drivers, but no reason at all to think they provide the right number of athletes.’

It isn’t a question of providing ‘the right number’. Markets don’t do that. What they do do, is produce closer to ‘the right number’ than any other alternative of which we are aware.

So, what is the alternative method of providing closer to ‘the right number’ of athletes?

As tarnished as they are becoming, there are still very few things in our society that inspire like an Olympic medal. If you ever get a chance, watch people when they are around one. Young and old, they all want to touch it. And they want to touch it because, even as commercialized as it has all become, that medal still represents to people something of the higher aspirations within us. It’s something above simple economics. It’s about meaning, not money. If one doesn’t already appreciate that, there is no logical argument than can persuade otherwise.

I don’t buy the argument about parents of Olympians feeling “sheepish.” I’ve known several, and never met one that wasn’t proud of their child’s effort and accomplishments. I haven’t seen any on TV this week that look sheepish either.

While the territory is filled with landmines, I do think a discussion of social value is important, and despite the dangers, the landscape should be traversed. An economics that takes no stock of social value and social considerations is an impoverished economics. But one of the first landmines has to be, is money the only measure of social value?

What social contribution has Wall St ever provided America? Outside of ATM’s, it’s hard to come up with a clearly beneficial example of financial innovation. Banks close arbitrage opportunities quickly, and one can make a lot of money, but there’s no actual social gain from doing that. One might claim the financial system provides “liquidity,” and one could argue that if people are hanging on to a lot of idle cash there is some social loss, but it turns out just when we needed it the most, that liquidity froze…

In the meantime, while we ponder these imponderables, I’m a lot more inspired by what I see right now in Vancouver than I am by what I see on Wall St.

PS. The economics of superstars paper seems to indicate some unusual things about superstar markets. The first part isn’t unusual, as the audience grows, so does the size of the reward (i.e. TV exposure is lucrative for skating). But it also seems to indicate that as rewards go up, there is a customer substitution of quality for quantity (i.e. If you aren’t pretty close to Apollo Ono, benefits aren’t conferred upon you and therefore less talented skaters leave the market in favor of those closer to Apollo Ono.) I’d have to read it again, but the paper almost seems to indicate that the better Apollo Ono is than the rest of the world, the fewer skaters there will be in the sport because there is no real substitute for Apollo (i.e. look at what has happened to golf revenues since Tiger Woods changed his name to Cheetah).

Rosen’s conclusion appears to be that the market tends to be increasingly dominated by smaller numbers of extraordinary individuals earning large incomes when the size of the market expands. My understanding is that you say this is bad for tournaments because a small change in talent results in a disproportionately large change in income which gives athletes socially-destructive amounts of incentive to compete with other athletes. But Rosen’s paper seems to provide the counterargument, for athletes as well as business innovators: “Lesser talent often is a poor substitute for greater talent…hearing a succession of
mediocre singers does not add up to a single outstanding performance” This is not a market failure as you suggest; it is an explanation of why incomes are distributed as they are.

It is theoretically possible that an athlete’s innovations could create enough social value to justify the effort. But I think it’s more likely you’d get the opposite effect. In either case, though, the main point remains: There is every reason to think that markets provide the right number of taxi drivers, but no reason at all to think they provide the right number of athletes.