The paper "Economic and Business Aspects of the NBA Lockout" is a wonderful example of an assignment on business. We discussed the importance of asymmetric information in contractual production and eventual outcomes, in terms of the occurrence of cases of adverse selection and moral hazard. We also discussed that in the provision of public goods and in rent-seeking, how important is the fact that the interest groups should be relatively small and represent a set of concentrated interests as opposed to a large and dispersed interest group. Analyze the negotiations between players and team owners with respect to the new collective bargaining agreement for the NBA.
In particular, analyze the following aspects: As far as the negotiations are concerned, both sides are in a stalemate. As one writer puts it, “ They are more concerned about making this situation a divorce, rather than a marriage. ” Clearly, his words remain to be true. The players are obsessed about increasing their salary from $5.8 million to $7 million on average. They continue to insist that they have “ families to feed. ” Consequently, the owners feel that it is in their best interest to offer 47% split with the players and nothing more.
Truly the whole process of collective bargaining has completely broken down as the players are threating to file for an anti-trust law. · How concentrated or dispersed are the two groups involved in these negotiations? In particular, can you find different interest groups inside either the players or owners that may have a negative impact on having a stronger negotiation stance? From my perspective, both groups are heavily dispersed due to many factors.
Both groups clearly want a deal that is most lucrative to them. Clearly, For the NBA owners and players not to reach a compromise in the midst of a horrible economic recession is illogical and pathetic. Although both parties continue to meet, they never tend to reach an agreement, which clearly has jeopardized the season itself. The process is so lengthy and time-consuming that it will take another month for the union to hold a vote and complete the process of decertification. From my understanding, the labor union can have a profound negative impact.
The players continue to threaten the union to disband and then file an antitrust lawsuit. The question remains- what negative impacts will that create? Economists insist that a decertification wherein the players reject the existence of unions would mean that a union will not represent the players association. The players will not be protected by the National Labor Relations Board. Hence, it will not be able to derive any benefits that can be achieved due to anti-trust law. · From the different issues being negotiated, which do you think are the most likely to suffer from adverse selection or moral hazard problems, and how do you think players or owners are addressing these issues? In this theory, a moral hazard is depicted clearly in this issue.
Moral hazard occurs when a party understands the transaction and decides not to enter a contract in good faith because they do not acknowledge the ramifications about the decision. Moral hazard arises because an individual or a party does not understand the gravity of their decisions. It is defined as a problem created by asymmetric information before the transaction occurs.
Adverse selection occurs when financial potential borrowers, who have the possibility to produce unlikely results. Clearly, both the players and owners are playing this game as they are trying to secure their assets by not entering a mutually binding contract. Players and owners can address this issue by trying to design a plan in which a 50% split can be divided amongst them. Obviously, that is not feasible at this stage because the players want more. One thing the owners can attempt to do is motivate compensation through performance and increase the salary at a steady rate.
This will not only motivate players to perform in games and come to practices but also allow owners to keep competition fierce in the league.