goonix

Chelsea’s transfer ban and the potential for player hold-up

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FIFA have punished Chelsea by banning them from the signing new players in the next two transfer windows after they were found guilty of inducing Gael Kakuta, a France youth international, to breach his contract with Lens in 2007. The decision means that Chelsea will not be able to add to their squad until January 2011.

Fifa’s regulations on the status and transfer of players state in Article 17, paragraph 4: “It shall be presumed, unless established to the contrary, that any club signing a professional who has terminated his contract without just cause has induced that professional to commit a breach. The club shall be banned from registering any new players, either nationally or internationally, for two registration periods.”

How will this ban affect the incentives of current players registered with Chelsea? The club, being unable to sign new players, will be desperate to hold on to what they already have. The current players, knowing that the club cannot look elsewhere to replace them, will be in the driving seat when it comes to contract negotiation as they can effectively ‘hold-up’ the club to meet their demands.

The precedent for such bans being enforced is not strong, however, with Roma having their ban reduced to one summer transfer window (arguably the less important transfer window in a season) and Swiss club Sion currently appealing their two window ban.

Will Taylor

Ever organised a dinner party?? Then you are an expert in running a two-sided market!

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In my wanderings I found this neat little example using dinner parties to explain two sided markets (source):

The task facing a certain kind of entrepreneur these days is no more unfamiliar than the engineering of a successful dinner party.  The French ambassador would never so much as respond to an invitation — unless you intimated that Rupert Murdoch, say, would be there, in which case he would accept. Murdoch, if he thought that the Attorney General would attend, would show up, too. And if you led the AG to think his dinner partner would be his favorite movie star, who, you let slip, so badly wanted to meet him (while telling her the same thing) …. Well, pretty soon you’d have a famous dinner party. After three or four such successes, your reputation as a host would make your job much easier, with chefs, provisioners, decorators, and florists anxious to work for you.

Interesting analogy, I imagine anyone who has ever oranised a party will  sympathise with this description:)

Matt Nolan

Why?

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Defective Equilibrium mentions that John Minto’s idea of a salary cap is madness.  He is correct.

My question is why?  Why have a salary cap?  Why would society need to stop people voluntarily trading?

If someone pays someone else an “eye popping salary” this is voluntary trade, why do we feel that we have to jump in and regulate a “maximium value” for this trade?  There are two reasons for asking this question:

  1. It makes us realise that capping salaries just because they seem too big isn’t a “fair” thing to do.
  2. It might make us see where an actual market failure exists – which is turn might illustrate an issue we should look at regulating.

So, why?

Matt Nolan

Shock of the day: banks are rational

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According to Kiwibank, the other banks profit maximise:

Most banks are only interested in making as much money as possible out of their current customers, Kiwibank chief executive Sam Knowles says.

Now the actual stuff Sam Knowles says, for example the context of the above quote is really that Kiwibank is trying to build market share (since there is a significant transaction cost for consumers moving around the market) while the other banks are satisfied with their share, and so will be extracting surplus – in other words Kiwibank is keeping prices lower now to “invest” in the future.  Furthermore, I agree with him when he says:

New Zealand should work towards customers having a bank account “for life” and if they want to change banks “you can go and get it done” without any hassle,

As this would improve competition.

However, I just thought it was funny that the quote at the start of this post was the first paragraph in the article.  It is as if the newspaper thought there was something novel in the fact that banks act like everyone else.

Will Taylor

Fonterra auction to “blame” for high milk prices?

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Back in November (I need to post more often, lol) I posted about how retarded it was that the Fonterra auction was being blamed for low milk prices.

Reading in the news today that prices on the acution are up 24%,  I wonder if the auction will also be “blamed” for this change in prices?

I somehow doubt it, I think people will continue to attribute “blame” to the auction when prices don’t swing their way rather than look at the underlying reasons behind the change. Something like what Matt and I did after my last post on the auction (here).

Matt Nolan

Quote 23: Daniel Little on Popper and meta-social theories

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Excellent quote (ht Economist’s View):

Popper’s critique of historicism, then, can be rephrased as a compelling critique of the model of the natural sciences as a meta-theory for the social and historical sciences. History and society are not law-governed systems for which we might eventually hope to find exact and comprehensive theories. Instead, they are the heterogeneous, plastic, and contingent compound of actions, structures, causal mechanisms, and conjunctures that elude systematization and prediction. And this conclusion brings us back to the centrality of agent-centered explanations of historical outcomes.

Agreed with this 100%.  Fundamentally, the usefulness associated with the study of economics comes from its framing and discussion of tendencies – not from the precise value of its predictions.

An understanding of individual actions and incentives allows us to describe what has happen and inform policy – but it does not give us a crystal ball with which to see the future, or figure out exactly what will maximise social happiness.

That is why we economists never seem to agree with each other.  But when we do agree, it is probably a good idea to listen, as there must be a rare combination of compelling factors driving such an unlikely event 😀

Note:  To clarify what I think the quote says that I’m agreeing with.  I believe it says that we can’t come up with some holistic model of society that will spit out nice predictions – we can only try to understand society through the behaviour of individuals given observed actions.  This sounds like methodological individualism to me …