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The Economics of Steroids (revised 8-Dec.-2008)

The Economics of Steroids (revised 8-Dec.-2008). Background. Anabolic steroids = a class of drugs that build muscle mass and can enhance athletic performance. First discovered in 1930s; many legitimate medical uses, but many negative side effects.

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The Economics of Steroids (revised 8-Dec.-2008)

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  1. The Economics of Steroids(revised 8-Dec.-2008)

  2. Background • Anabolic steroids = a class of drugs that build muscle mass and can enhance athletic performance. • First discovered in 1930s; many legitimate medical uses, but many negative side effects. • Developed for commercial use in 1958; sold to bodybuilders, football players, weightlifters, etc. • Late 1980s: allegations of steroid use in MLB • (the “Jose Canseco milkshake”) • Since 1990, illegal in U.S. except by prescription (Schedule III controlled substance). • Widening allegations of steroid use in MLB since 1998 (McGwire-Sosa home run chase, Wells and Canseco books...) • Most sports events and leagues have banned steroids by now.

  3. Why would an MLB player use steroids? • If steroid-aided strength improves your hitting or pitching, you’ll earn more. • Classic case: when steroid use greatly increases one’s home-run production. (Ex.: Sammy Sosa?) • Could be the difference between being in the majors or not. (Ex.: pitcher Jason Grimsley?) • We can apply the “prisoner’s dilemma” from micro: it would be better if everyone played clean, but if others gain an edge by cheating, you are worse off (monetarily) if you play clean. •  The resulting equilibrium is bad for everybody, because everybody cheats and nobody gains an edge. • If others are using steroids, temptation to use will be strong, especially if you might not be in the majors otherwise.

  4. Why would owners or fans tolerate it? • It seems that they do – fan interest (as measured by revenues) and team resale prices have grown rapidly during the “steroid era” (1998-present). • Steroids are thought to boost home runs and offense, and (studies find that) more offense boosts demand for games. • Fans may disapprove of steroid use, but they like offense and winning. • Extent of fan disapproval is uncertain: in a recent CBS SportsLine poll, steroid use was only the second-biggest problem in MLB cited by the public (after high salaries). • More offense  increased demand for MLB  more revenues for owners (and players) •  A “market failure” – in this industry the owners, workers, and customers all like the benefits of steroids too much to do anything about them.

  5. Why should we care? • Beyond the obvious issues of cheating, integrity, etc. • Many negative side effects, some of them . . . • severe (tumors, jaundice) • cosmetic (shrunken testicles, breasts, baldness) • psychological (extreme mood swings) •  This is a workplace-safety issue for athletes. • Public health hazard: copycat steroid use by other people • An estimated 1 out of 29 twelfth-grade males said they’d used steroids in their lifetime. • 1 out of 63 said they’d used them in the past month. • (source: 2004 survey by Monitoring the Future)

  6. What is being done? • Pre-2002: Next to no steroid testing or penalties. • 2002-2006 CBA: light penalties, little testing. • MLB’s steroids scandal intensified during that time. • 5-7% of MLB’ers tested positive in MLB’s own tests in 2003. • BALCO investigation  Bonds, Giambi • 2005: Congress held hearings on steroid use in MLB. • Some talked of imposing new, harsher laws against steroid use in MLB. • MLB responded by toughening its steroid penalties a little, then a lot, in 2005 and making them part of the new (2006-2011) CBA. • 50-game suspension for 1st offense, 100 games for 2nd, lifetime ban for 3rd • 2005-2007: Mixed progress. • Over 100 players, mostly in minors, have been suspended for steroid use since April 2005. Less than 1% of MLB’ers tested positive in 2005. • But steroid tests can still be evaded, with “masking agents,” etc. • 2008: 3 major leaguers and 66 minor leaguers suspended.

  7. The Mitchell report • Dec. 2007: Lengthy report by former Sen. George Mitchell is released • Commissioned by MLB in March 2006 • 86 current and former players named as steroid users • Including superstar pitcher Roger Clemens • Including 7 MVP’s and 31 All-Stars • Evidence was mostly hearsay. • Only one active player (Jason Giambi) cooperated. • Still, except for Clemens, virtually no players have sued. • All players named got amnesty. • Made 20 recommendations; all were adopted. • 2008 was first year under new drug-testing program. Annual report due out in Jan. 2009.

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