Monday, June 18, 2007

US Open, and redistribution

I barely had any time to watch the US Open this weekend as I was too busy but it was a doozy. The little time that I did have was on Saturday afternoon when I saw Tiger Woods two putt a couple of holes he should have been able to have one-putted. One of the guys I was watching the Open with over our game breaks works as a short order cook at a restaurant near one of the major overflow parking lots for the Open, and he said that this week was the busiest week he has ever seen with quadruple normal business. His experience was not uncommon. The Pittsburgh Post-Gazette reports on the estimated direct economic impact of a large one-time off event such as the Open:

The nearly $60 million in economic impact that the U.S. Open is predicted to infuse over the course of the tournament is showing itself all over the Pittsburgh region,...

The economic impact figure, projected by VisitPittsburgh according to a formula devised by the Destination Marketing Association International, is more than double the $23.4 million spent during the pre-Tiger Woods, pre-Golf Channel, 1994 U.S. Open at Oakmont, said Bob Imperata, the group's executive vice president.

It's also about $7 million higher than the number predicted for last summer's Major League Baseball All-Star Game.

However not everyone in the Pittsburgh region will be an economic winner. Locals most likely shifted their consumption and expenditure patterns to different times and locations in order to avoid the massive crowds. More importantly and notedly, the host community of the US Open, Oakmont, PA will be an economic loser. The Post-Gazette explains in a different article:

"Terrible!"

That, in a word, has been the effect of the U.S. Open on Oakmont's businesses, said Diane Hulton of the borough's chamber of commerce.

Despite predictions that the U.S. Open would bring more than $59.7 million to the regional economy, the businesses in Oakmont itself haven't seen much of that green. News media warnings of clogged streets and impossible parking, combined with a traffic plan that shuttles golf-watchers straight from satellite lots to Oakmont Country Club, have kept the central district barren.

"The businesses in town are suffering, and I can't seem to do anything about it," Ms. Hulton said. Despite a shuttle running between the course and the town, few Open-goers have ventured to take it, she said.

"This is a ghost town," said Carol D'Imperio, manager of Mae's Hallmark, a gift and card shop. Even though a big red sign in the front advertises extended hours till 8 p.m., "we closed at 7:30 yesterday," Ms. D'Imperio said. "It was not worth staying open." Even the regulars were staying away, she said.

So what are the public policy implications of the economic impact of the US Open in Southwestern Pennsylvania. I think that we can pull out a couple of them. First is the concept of locally undesirable usage. The second is the nature of a collective action problem on compensation, and the third is that even positive events like the US Open which increase economic activity produces both winners and losers.

The Open effectively and implicitly shut down the town of Oakmont for most of the week. Any other town similar to Oakmont that was not hosting the Open would have benefited last week. Hosting the Open had Oakmont bear a high opportunity cost in lost business as well as the real and direct costs of increased security, increased public services and hassle. However the region as a whole benefited.

Pareto improvements could be had if there is a coherent way for the winners in Harmarville or Hampton Township to transfer some of their profits to compensate the business in Oakmont. The only way that this can occur right now is through the increased sales tax revenue generated which goes back to the state and the county RAD districts. The marginal revenue here could be dedicated as a compensation fund for Oakmont's direct and indirect costs, but usually it is not.

From a regional perspective, the US Open was handled well, and it was very profitable. However even within this viewpoint, we saw clear winners and losers and an inadequate compensation system for some of the losers. It is this failure to compensate localized losers while the region wins that produces so many fights on the right to site a locally undesirable land use such as a football stadium or waste processing facility or a major slots parlor. The promises of compensation have been broken in the past, and there seldom is a credible enforcement mechanism to hold the stakeholders' promises to actualization. So we see some nasty, vicious and long lasting fights because no one wants to be the dumping ground of regionally needed but locally painful uses.