Snooker and Rent Seeking

A fellow economist, Rob Taylor, challenged me on my risk aversion interpretation of Ronnie O’Sullivan’s refusal to take a black for a maximum break (which would have got £10000+£2000 for highest break) and instead opt for a pink and a 146 (getting £2000 for highest break).

It stretches credulity a little to think about Ronnie O’Sullivan, one of the most talented snooker players that has ever played the game, as in any way risk averse on the table.

A better argument, and one that covers a concept we covered earlier on term, is to think about rent seeking. If you recall, rent seeking is where some agents rather than creating value, seek to apportion the value created by others for themselves. Music piracy is one example – the value is created by the artist, and rather than the artist getting any money, if we obtain a pirated copy of their music for some cheap price, we have paid someone other than the artist who has made available the artist’s work at a fraction of the true value of it – at the same time depriving the artist of any return for their value added.

In snooker, big breaks are a huge part of the game – anyone who watches the games loves to see a big break being built. Sure, safety exchanges can be fascinating, but the reality is that great pots followed by great positional play are what draw in the crowds. Nothing more than a 147, the maximum break which requires a player to keep position on one colour after each of 15 reds potted – the black, a colour that is usually mired in amongst the 15 reds due to its position on the table. To see a 147 is very rare also, if increasingly common.

However, the prize for a 147 is not particularly large. In 2010 at the World Championships, O’Sullivan needed persuading to pot the final black on being informed the prize was £4000. In the case the day before yesterday, the prize was £10,000, five times that for the highest break, yet it is hard to argue that a 147 is worth that little relative to any other high break.

The suggestion thus is that snooker authorities are pocketing (pun intended) the revenues from crowds flocking to watch the game, rather than rewarding the players, who are the reason fans watch the game. They have extracted rents from the process over and above what is due to them for their role in ensuring snooker is a game we can all watch around the world.

Corruption and Growth?

Last week we considered economic growth, and noted the role that institutions play in fostering, or at least being correlated with, economic growth. We considered corruption when thinking about rent seeking: whether economic agents create value themselves, or seek to apportion the value created by others – for example, via piracy or theft.

We saw a version of the Corruption Perceptions Index, a measure of corruption amongst countries, noting which countries were deemed less corrupt, and which others were more corrupt. Today Bloomberg reports on the 2015 Corruption Perceptions Index, in which apparently Brazil and Turkey show the biggest falls. Related or otherwise, Reuters reports that recently the IMF downgraded its GDP growth forecast for Brazil to -2.5% from 1.1% in 2016, and the World Bank cut its growth forecasts for Turkey recently.

What’s wrong with a bit of corruption?

One bit of news over the last few days has been another bunch of Fifa officials being arrested for corruption. You may, of course, be tempted to shrug your shoulders, particularly if you don’t like football much. Maybe if you like it, you may have already got corruption fatigue in light of all the high-profile (and long overdue) arrests thus far.

It might be worth thinking about what exactly is wrong with corruption? What even is corruption? Casting it in an economic light, it’s a mis-allocation of resources, where the means of re-allocation has a criminal element to it.

Thinking even more strongly in economic terms, corruption is rent seeking behaviour. That is, it is behaviour that does not create new wealth (such as producing a new widget that can be sold), but instead that extracts wealth from others. For example, a corrupt official may solicit bribes from those around him (or her); those bribes do not create anything, they simply reallocate wealth to the corrupt official.

Hence we can think that, absent of corruption, there might be a very different distribution of funds and activities in Fifa – some of the vast amounts of money that move around the game might get to grass roots endeavours around the world, in some of the poorest and needy parts of the world, rather than in the pockets of officials of football associations in some of those countries (and other ones).

So, even if we don’t care about football itself, we ought to care about corruption – and we ought to be trying to ensure that in all areas of economic life resources are going where they ought to be going, rather than into the hands of corrupt officials…