Qualifications to the Rottenberg Invariance Theorem

Abstract

A total of 50 years after Simon Rottenberg's article appeared in the Journal of Political Economy, his seminal article continues to be one of the most cited studies in the field of sports economics. Although his article discusses such central concepts as the Uncertainty of Outcome Hypothesis and how territorial rights are the underlying source of monopoly power, he is perhaps best known for his Invariance Theorem. Here Rottenberg states that the allocation of talent in a sports league is invariant to the ownership of property rights. This Strong interpretation of invariance, which is widely held by the profession, is predicated on a number of fairly demanding conditions. In this article, the author explores a number of these conditions, which must apply in order that Strong invariance holds. These conditions include the Daly and Moore externality problem, the critical role of transaction costs, and the impact of player preferences. Although the author respectfully acknowledges Rottenberg's Invariance Theorem for its insightfulness and elegant prowess, he simply wishes to point out how restrictive the conditions are that underlie Strong invariance.