Answer to Question #49828 in Macroeconomics for Obinna

Question

How does the invariance principle impact sports as it relates to economics?

Answer 1

The invariance principle is a version of the Coase theorem, which states that in competitive markets and given that resources are freely exchangeable, the distribution of their ownership is irrelevant in ensuring that they are used efficiently. However, the assumptions of this model are quite restrictive – perfect competition, perfect information, the absence of transactions costs and the absence of wealth and income effects. It is doubtful whether these assumptions hold in the context of a professional sports league in which clubs are local monopolies and particularly so where clubs are of different sizes.