View Single Post
12-11-2012, 06:08 PM
**** Cycle 4 Eichel
haseoke39's Avatar
Join Date: Mar 2011
Posts: 10,221
vCash: 500
Originally Posted by SaintPatrick33 View Post
Not really. If someone broke it down I'd probably be familiar with the concepts but I've never studied it.
The classic example of collective action problems is a grazing field where there are too many farmers using it. If each farmer just does what's in his own self-interest, they'll take out ten livestock to graze each day, and soon the field will be overgrazed, collapse, and take years to recover, hurting everyone. If, however, each farmer takes out only 8 livestock per day, the field will be useful in perpetuity. The problem is that each farmer knows that each other farmer will want to take out ten, so their utility maximizing position is just to take out ten as well, and have a short-lived plenty. This is because no other farmer trusts any other farmer to just take out 8 livestock, so they figure the field will collapse no matter what they do. They call this variation a "tragedy of the commons," and it plays out in numerous situations, financial markets, etc - wherever each party is incentivized to act in a way that hurts the group. The solution, of course, is simply for the farmers to create a set of rules that prohibits any one of them from taking out more than 8 livestock a day.

NHL labor negotiations are a perfect corollary. For each team to be healthy, they need the league as a whole to be healthy, which means they need their brethren to be able to turn a profit. That means allowing them to be cost competitive and only paying players at a level where each team can be competitive in the labor market. However, in a market with no rules, each team finds its utility maximizing position is to bid as high as possible, exacerbating the problem for the weaker teams. So a set of rules that restricts teams to spending what the league as a whole can afford is a benefit to all.

The problem, of course, is that no team can be an island. "Free markets" only work where financial competition is an asset, and financial competition is an evil in the world of pro sports. Teams don't exist to steal each other's customers, and they all benefit by having healthy partners. The product they are selling is a network of competitive franchises, not just the best franchise. If free markets were allowed to reign in sports, the end game would be one team left - whichever team assembled the best talent at the lowest cost. Of course, there would be no league.

I just wonder how many folks who rely on "free markets" to argue that owners should be in pure financial competition with each other are familiar with the concept of collective action problems, or how many have thought about what it means for the NHL to be in "competition" with itself. When someone says "the problem is just that owners don't have self-control," that's a perfect example of misunderstanding how collective action problems work. Every rational farmer in the tragedy of the commons knows that, unless rules are in place to stop his neighbors from pillaging the field, the best thing he can do for himself is try to take his piece of the pie and exacerbate the problem. As an econ grad and someone who studies markets in my day to day work, it just seems like folks are latching onto an underdeveloped idea there.

haseoke39 is offline