Summary of the Article
State and local governments spend a lot of public funds in subsidizing the construction of arenas and sports stadiums with the view of generating income and positive externalities. However, Johnson and Whitehead (2000) argue that constructed arenas and stadiums have failed to cover the construction, maintenance, and operation costs, and thus, they are not lucrative ventures for governments and investors. Evaluation of arenas and sports stadiums from the economic perspective does not warrant governments to use public funds in subsidizing their construction. The indirect benefits of arenas and sports stadiums constitute economic benefits, while the direct benefits constitute public goods. In essence, the lucrativeness of arenas and sports stadiums is difficult to ascertain because the value of public goods is amorphous. Therefore, the study applied the contingent valuation method in assessing public goods of the proposed projects in Lexington: basketball arena and baseball stadium.
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The assessment of the proposed projects using the contingent valuation method is significant because it gives the value of public goods. Given that evaluation of economic benefits does not warrant the establishment of the arena and the stadium, evaluation of external benefits in terms of public goods using the contingent evaluation method offers an appropriate and accurate valuation method. In this case, the contingent valuation method assesses the public goods of Lexington’s projects: the basketball arena and the baseball stadium, and thus, determine their benefits to the baseballers, basketballers, the University of Kentucky, Lexington, and Fayette County.
The methodology of the research is the case study of Lexington’s project proposals. To collect qualitative data, the study employed surveys of the contingent valuation method and administered them to 230 households in Lexington. The surveys collected quantitative data among the respondents concerning their consumption of sports. In the analysis of the collected data, the study employed descriptive statistics and regression tests. The findings of the study revealed that the basketball arena and baseball stadiums do not offer significant public goods to warrant their establishment. According to Johnson and Whitehead (2000), 63% and 68% of respondents expressed zero willingness to pay for the baseball stadium and the basketball arena respectively. Hence, the findings conclude that public funding of the basketball arena and baseball stadium does not offer the expected benefits of public goods.
Evaluation of the Article
The article effectively describes the importance of assessing the lucrativeness of projects before funding them with public funds. Specifically, the article recommends the application of the contingent valuation method in assessing the value of public goods that people could achieve from the proposed Lexington projects, which are basketball arena and baseball stadium. The use of case studies and surveys as part of the research methodology gives an empirical application of the contingent valuation method. The contents of the article are very persuasive because they describe the context of research, illustrate the analysis of data clearly, and present findings in a comprehensive manner. The authors of the article, Bruce Johnson and John Whitehead are experts in the field of economics because they are associate professors of economics in Centre College, Danville, and East Carolina University, Greenville respectively. Hence, the authors expertly examine the feasibility of the proposed projects and provide a comprehensive analysis in the article.
Topic of Interest
The article relates to the topic of financial management in public institutions. The construction of sports stadiums and arenas requires appropriate management of public funds to avoid their wastage in the construction of unprofitable projects. In this case, the article illustrates the application of the contingent valuation method in assessing if a project has significant public goods. In essence, the article reiterates that the contingent valuation method is effective in assessing whether a project has significant public goods to warrant its establishment. Thus, the assessment of projects regarding their public goods constitutes financial management.
Johnson, B., & Whitehead, J. (2000). Value of Public Goods from Sports Stadiums: THE CVM APPROACH. Contemporary Economic Policy, 18(1), 48-58.