Edited by Wolfgang Maennig and Andrew Zimbalist
Chapter 3: Mega Sporting Event Bidding, Mechanism Design and Rent Extraction
Brad R. Humphreys and Henry van Egteren 1 INTRODUCTION Economics studies the allocation of scarce resources. The rights to host a mega sporting event such as the Olympic Games and the FIFA World Cup can be thought of as scarce resources that must be allocated to only one among a group of competing cities. Mega sporting events are scarce because they are held infrequently, in most cases only every four years. In economic terms, the non-governmental organizations (NGOs) such as the International Olympic Committee (IOC) or the Fédération Internationale de Football Association (FIFA) that hold the rights to mega sporting events can be viewed as monopoly sellers and the potential host cities or countries can be viewed as competing buyers. This monopoly power further reduces the number of mega sporting events that exist. Many mechanisms to allocate scarce resources, such as the rights to host mega sporting events, exist and each has different properties, implications and characteristics. From an economic perspective, the procedure that awards cities or regions the rights to host mega sporting events such as the Summer or Winter Olympic Games and the World Cup can be understood through the lens of mechanism design theory, the branch of economic theory focusing on how an allocation process should work and the general characteristics of allocation processes. The basic approach in mechanism design theory is to specify a goal, in this case the awarding of the rights to host a mega sporting event to the ‘best’ host city...
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