Internalizing externalities: How to reduce injuries in competitive sports

It happens all the time: a guy fails to stop at a red traffic light and crashes into another car, causing massive damage to the vehicle and serious injury to the driver.

Now, imagine a world where the offending driver had no responsibility to pay any form of compensation to the victim, and - no matter how substantial the damage - his only punishment was to have his driving license revoked for three weeks.

Crazy? Welcome to the world of professional sport.

Last weekend, Gunners watched in horror as Aaron Ramsey suffered a terrible injury at Stoke. As a direct result of this, he is likely to be unable to play for months, at immense financial cost to Arsenal and the player himself.

Arsenal is prohibited from filling the vacancy quickly by signing a player from another club, and this could well cost them titles and the financial benefits that come with them. Furthermore, players are a football club's most valuable assets*, and in a very direct sense: Ramsey is worth a lot of money to Arsenal, and the club could have even chosen to capitalize on that by selling him to another club. Ryan Shawcrass caused damage to Arsenal's assets much the same way as having taken a baseball bat and wrecked their offices.

Aaron Ramsey seems to have escaped relatively lightly this time, but of course there's always a chance he will never fully recover, losing out on millions of pounds he has been expected to make as a top-flight footballer. And of course there's the psychological trauma he has to go through.

The punishment for the offending player and team? A three week ban on the player participating in club games (ironically, Ryan Shawcross learned of his first England call-up on the very day of the incident)

In econ-speak, this is a classic case of an externality: players and clubs hardly have any incentive to play less agreesively, as they don't have to suffer the consequences of their playing style to the opposing team and its players. Since they don't face the cost, they end up playing more aggressively than is optimal, leading to an inefficiently high level of injuries.

Some people may protest that no player ever intentially injures another, and they would be right. But whether injury is caused intentionally or not is largely irrelevant: it is also the case that no driver ever intends to cause an accident. He merely chooses to take on additional risks by ignoring a stop sign or by driving above the speed limit. Similarly, clubs and players choose to play more aggressively, increasing the probability that any given tackle will cause injury.

FIFA, UEFA and the FA must take action now: any injury caused as a result of foul play should be costed, with the offending club having to pay appropriate compensation to the injured player and his club. This will bring injury rates down, and make the beautiful game better and safer. The current situation is madness.

* Professional sport is really the last example of a labour market where is it OK to buy and sell people; in other areas, such arrangements are strictly illegal: it's called slavery. Even though the status quo is beneficial to both clubs and players, I am deeply perplexed that this is a stable equilibrium, given that all it should take for it to unravel is a single player wanting to declare his contract null and void and bringing the case to a court of law. But this is the subject for a future post.