NYC Olympic Bid: Market Inefficiencies and Governmental Action

With the approval of the building of a new stadium in the West Side of Manhattan, to the designing of an Olympic village, to the recent release of the formal 2012 Olympic Bid, its been tough to not see any coverage of the NYC Olympic bid if you ever travel to any sports related website, from espn.com to CPSsportsline.com to cnnsi.com there have been sporadic article involving one issue or another since July. A New York Times article discussing some of it can be seen here: http://www.westsidestadium.com/content/newsarchives/nyt111804.htm . What is interesting about this, is that the government of NYC is deeply involved in it, and looking at the issues gives a good understanding of two of the market inefficiencies under-provision of public goods and positive externalities, we discussed in class, and the possible appropriateness of government or collective action in such cases. Firstly we can look at the idea of the Olympics as a whole as a public good. As a whole it is non-rivalrous. The more people involved in the Olympic experience, it doesn’t mean there is less enjoyment. As far as exclusion, you can easily exclude individual events, but the Olympics as a whole aren’t really exclusionary. Especially in a place like New York. The whole city becomes part of the experience and its not all that feasible to exclude. Thus there is reason that Bloomberg might force collective action by paying for the Olympics with tax everyone’s tax dollars. If, however, you buy into the theory of clubs and the lighthouse idea, and presume that you could sufficiently exclude the Olympics, and suppose someone had enough capital to privately fund the Olympics. Why then, might the government take action, as it is doing, to try to attract the Olympics? There are a number of externalities involved with the Olympics. It attracts huge tourism, now and after the Olympics, there are many jobs involved with it, it allows for new buildings to be made, new construction, it gives a good image for the city, and many intangibles. Presuming it outweighs the negative externalities (traffic, businesses shut down, etc.) the Olympics might be underprovided. We can’t rely on the Coase theorem to solve this problem, with the huge amount of varied people in NYC, so the government steps in, to ensure the optimal amount of Olympics are provided, that’s why they spend the tax payers money to get it. Now, we can look at some of the specific parts of the Olympic bid to see the market inefficiencies, and the reason for governmental collective action. The first can be seen in the first article here: http://www.velonews.com/news/fea/7185.0.html . The City is spending 21 million dollars to turn an old landfill into a park w/over 50 miles of biking and running trails and over 2000 acres of park. Why? Well, Buchanan and Coase would say unnecessarily, since exclusion would be easy. But it is definitely, to a large degree, a public good. It benefits the whole city, yet a free rider problem (and the fact that it would be there for more than a million residents, certainly would cause problems as well) lead the city to feel it must force collective action. On top of this, it would be the mountain bike and equestrian venues for the Olympics, which we’ve already discussed as a possible public good. So the city uses this reasoning to take action. An even larger expenditure by the city, involves the partial funding of a Stadium, seen here: http://sports.yahoo.com/nfl/news?slug=citadel-2_314839_65&prov=citadel&type=story . The city would contribute some 300 million to the building of a Stadium, in Manhattan, that would be used by the Jets and the Olympics if they got it. When including the necessary building of a subway as well as some related office buildings, the city would be paying more than 1 billion dollars in the whole project. Clearly, as seen by the number of privately funded stadiums, this isn’t an issue of Public Goods. Why then, is the government getting involved. There are major externalities and the size of the city make the Coase theorem obsolete. Because it would easier for a private person to make the stadium in Queens (thus under-producing in Manhattan w/0). Because of the jobs, the new construction, the tourism attracted by the stadium’s events, and mainly the use of it to attract the Olympics, there are many benefits that all external to the people producing and consuming the stadium. Thus, whether its right or not, Mayor Bloomberg feels he must use tax payer money to make sure the market is efficiently allocated. I’m dragging on here, so I’ll wrap it up. I guess my point is that public choice is applicable to everything around us. Not just things seen on the Wall Street Journal or CNN but the sports pages, or anything else (like “Public Enemies” that he mentioned in class today).