Friday, November 21, 2014

Two stories on bias in economic impact studies

1. Great article on how Lebron James is NOT creating a $500 million annual economic impact for Cleveland.  

The biggest problem with the $500 million figure is that it falls prey to one of the most serious fallacies in economic impact analysis: the failure to account for the substitution effect. Any money spent by local residents at Cavs games is money not spent elsewhere in the local economy. The extra 150,000 fans who will be going to watch LeBron next year are 150,000 people who at least on game nights aren't going out to nightclubs, restaurants, and theaters. The higher ticket prices mean less disposable income for fans to spend on Indians or Browns games, or movie tickets, or bowling, or free-style skydiving, or whatever it is Clevelanders were doing while LeBron was in South Beach. Similarly, every kid in Cleveland will be getting a LeBron jersey for Christmas or Hanukkah this winter, but this doesn't mean they will be getting more presents; it just means they're getting different presents. 

My argument, just like my research has shown most notably in the renewable energy industry, is these types of estimates are typically much higher than careful analysis or reality can confirm,” Swenson said.
While Swenson might be right that the dollar estimate is too high, the pipeline will create an enormous economic.  The debate here focuses on how large the impact will be.  That is far different from the article about LeBron James returning to Cleveland.  He will have almost no economic impact on the city of Cleveland.  The big reason the pipeline will have an impact but extra sales of Cleveland Cavaliers tickets won't have an impact is that the pipeline construction doesn't suffer from same "substitution effect" issues.

3. Bonus story!  A new EI study on the pipeline was just released.  Link here.

1 comment:

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