Friday, 4 October 2013

The ex ante and ex post benefits of events

When considering the issue of the benefits of of big events Shamubeel Eaqub writes at the TVHE blog that,
In the lead up to the RWC, we looked at a range of events. International studies of sporting events fall into two categories, those done before the event, and those done after. The studies in the lead up to events on average forecast economic boost of around 1% of GDP. The studies done after the event estimate economic boost of around 0.1% of GDP [...].

Once the initial boosterism fades, large economic benefit estimates are largely disowned and there is a greater focus on intangible benefits such as showcasing the area, long term positive association and somewhat esoteric ‘feel-good’ factor.

There is nothing wrong with events. They are fun. But the fetishist need to justify it on economic grounds is entirely unnecessary. Events provide very small, if any, tangible net economic benefit. There are many other intangible things that can be good, like speeding up the beautification of the city, or finishing off motorways in the lead up to the RWC for example. Its not that they wouldn’t have been done, but events have a habit of getting things done on a deadline.
Eaqub also points us to a working paper by Sam Richardson at Massey which looks at Justification for Government Involvement in the Hosting of Sports Events: Do Projected Impacts Materialise? As to the question in the subtitle, the short answer is no. The abstract of the paper reads,
Major sporting events are said to generate substantial economic impacts to host cities. Estimates of these impacts are typically used as justification for government involvement in the staging of such events. The majority of independent academic research, however, has found that ex-ante projections of economic impacts for host cities from major sporting events rarely materialise. This paper considers the realised economic impacts of fifteen major sporting events hosted in sixteen New Zealand cities between 1997 and 2009. Realised economic impacts are found to be the exception, not the rule.
Given that the economic impacts do not live up to the hype that comes from the ex ante studies I want to ask Why not? What are the people who writes these reports doing? How can they be so wrong so often? There seems to be a systematic basis here. Are these people just producing reports to support a predetermined outcome?

Eaqub also goes down the there are no tangible benefits so lets justify spending taxpayer's money on an event by saying there are lots of intangible benefits. He says, for example, speeding up beautification of the city or finishing off motorways is an intangible benefit. But you have to ask question about the optimal timing of such projects. If a delayed finish to these projects is optimal then you don't want them finished at an earlier date. And if an early finish is optimal then there has to be much cheaper ways of getting these projects finished earlier.

Also if you want to host events on the grounds that some people will get positive utility from the "thrill" of hosting then you have to net out the negative utility that other people suffer from hosting. You must consider both sides of the ledger. It's the net-thrill that matters. And good luck with that.

A more general point, you could justify any amount of spending on anything if you allow the benefits to be some "intangibles". You can always come up with a huge amount of "intangible". Policy based on "intangibles" is policy based on nothing. And what does this say about evidence based policy. What evidence can you have for intangibles?

And what else could be done with any money spent on an event? How many hip operations could be done with that money? How many child cancer patients would receive quicker treatment if that money went to them? How many schools could be kept open with that money? Opportunity costs are real costs.

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