Monopsony, Legislators, and Subsidies

Competition is a good thing, right? So why not allow the various communities within your state to compete with one another to attract a big business?

Of course, never mind that the business is already located in your state. That seems a trivial detail against the benefits of competition.

Forget that the business in question is a professional sports franchise with its hand out, expecting the citizens of your state to buy it stadium. Competition is, after all, good.

A report today out of Minnesota suggests that state lawmakers there are close to submitting a bill that would “pre-authorize a menu of local taxes and set up a stadium commission. If it passed, any local government could select from that tax menu to put together a financing package with the team and seek approval from the commission.”

Perhaps the legislation will bind the hands of the communities sufficiently that they can’t give the entire local tax base over to the Vikings in exchange for the team locating there. Clearly, however, competition of this sort amongst the communities within Minnesota must be a zero sum game, at best. The big winner will, of course, be the Vikings who can use their monopsony power to extract most or all of any possible rents from the winning supplicant. Perhaps local governments should get a lesson in the winner’s curse before putting together their package.

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Author: Dennis Coates

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Stadium Subsidies