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'Opportunity Costs' of Olympics

Estimating the Cost and Benefit of Hosting Olympic Games: What Can Beijing Expect from Its 2008 Games?

From: The Industrial Geographer, Fall 2005, Jeffrey G Owen,

ABSTRACT

Cities who host the Olympic Games must commit to significant investments in sports venues and other infrastructure. It is commonly assumed that the scale of such an event and the scale of the preparation for it will create large and lasting economic benefits to the host city.

Economic impact studies confirm these expectations by forecasting economic benefits in the billions of dollars. Unfortunately these studies are filled with misapplications of economic theory that virtually guarantee their projections will be large. Ex-post studies have consistently found no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies.

For the 2008 Summer Olympic Games in Beijing, it appears China will take these massive investments in venues and infrastructure to a new level. If organizers of the Beijing Games base their expectations on economic impact studies from previous Olympics, they are sure to be disappointed. The potential for long term economic benefits from the Beijing Games will depend critically on how well Olympics related investments in venues and infrastructure can be incorporated into the overall economy in the years following the Games."

Extract

Counting construction costs as a benefit is also an example of a more general error of economic impact studies: failure to recognize opportunity costs. Alternative uses of local dollars such as a hospital, education funding, or even letting taxpayers keep their money and spend it on what they want are not considered. Instead, dollars for the initial investment are assumed to have come out of thin air.

Will the economic impact of the expenditure on the project be fundamentally different from the impact that would have occurred if local residents had spent an equal amount in the economy? The answer is yes, but not necessarily in the way the economic impact model suggests.

The effect will be redistributive, putting money into the construction sector, and taking it away from other sectors, with the fairly safe assumption that expenditures by the general population would be more broadbased and thus less obvious.

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