World-class cycling came to Missouri. For one week in mid-September, Missourians were offered an intimate look at the sport. Judging by the crowds and the enthusiastic press, the state embraced the Tour of Missouri and consumed the product of watching cyclists whizz by at 30 miles per hour.
There has been some criticism of state officials, including in this blog, arguing that the state’s return on its investment is negative. I have not seen the final tally, but suppose that Missouri State Government paid $1 million to sponsor the Tour. On average, between 3 and 4 cents of every dollar of Gross State Product (GSP) is received by Missouri’s General Revenue Fund. Thus, the break-even point is somewhere between $25 million and $33 million in additional GSP that would have to be generated by the Tour of Missouri. I have seen the estimated economic impact from the Tour de Georgia and am skeptical. The bottom line is that it is unlikely that the Tour of Missouri created enough new jobs or new physical capital to generate an additional $25 million of GSP. Nor were there enough idle resources — such as empty hotel rooms — used by out-of-state fans and participants to add that much to the Missouri economy. Rather, what we saw was people substituting the goods and services associated with the Tour of Missouri, displacing other forms of entertainment. As such, I would agree with the narrow economic calculation of the rate of return; it was probably negative.
Does this mean that the State of Missouri should not have sponsored the event with any funding? That answer is yet to be determined. Economic theory indicates that governments do improve welfare when they use resources to overcome coordination failures in the market. In this case, can one imagine that the Tour of Missouri would have been an entertainment offering without the state government’s sponsorship? No. It is difficult to coordinate the numerous activities necessary to put on such a cycling festival; profit-motivated entrepreneurs are probably incapable of solving the coordination problem. Hence, there is a role for government to solve these issues and provide its citizens with this form of entertainment.
The rate-of-return argument notwithstanding, stewards of the state resources must be vigilant. Over time, the justifiable size of state sponsorship will decline as the coordinating problems decline. There will always be issues with state roads and protection that require some state intervention. However, the initial mobilizing services will disappear in several years. If the Tour of Missouri is valuable enough to Missouri citizens, it will survive declining state sponsorship. Ultimately, market forces will determine the value to this enterprise just as it vets all goods and services that consumers choose from. It will take several years to assess the outcome, though there are hints from the revealed preferences of the thousands of people lining the Tour route.
