The Econometrics of Sport
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The Econometrics of Sport

Edited by Plácido Rodríguez, Stefan Késenne and Jaume García

The study of sport in the economy presents a rich arena for the application of sharply focused microeconomics, macroeconomics and econometrics to both team and individual outcomes. This unique book offers a survey of recent research that follows the tradition of empirical and theoretical analysis of sport economics and econometrics.
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Chapter 7: Endogeneity in attendance demand models

Roger G. Noll


A hoary econometrics principle is that an ordinary least squares (OLS) estimation of a demand equation in which price is treated as an exogenous independent variable contains a specification error that is likely to produce a biased estimate of the coefficient on price. Price is an endogenous variable that a profit-maximizing supplier chooses on the basis of the cost function and the shape of the demand relationship. In a single-equation OLS model the coefficient on price measures its combined effects on demand (negative) and supply (positive). Only if the exogenous shocks to the equilibrium price and quantity operate to shift the supply curve but not the demand curve will an OLS estimate of the demand equation produce an unbiased estimate of the coefficient on price. If the unexplained shocks affect primarily the demand equation, the coefficient on price will measure primarily the positive response of supply to an increase in price, thereby causing the estimated equation to trace the supply curve rather than the demand curve.

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