Social Costs and Benefits of Hosting Mega-Events: The Example of Paris Olympic Games

 

As we await the grandeur of the 2024 Paris Olympic games, we must consider the economic repercussions that accompany such a spectacular event. In this blog we will specifically be focusing on economic repercussions in the form of externalities, a cost or benefit of economic activity to an unrelated third party. With Paris joining London as the only city to host the Olympics three times (International Olympic Committee, 2022), they are no stranger to these, however it is important to note the role that France's current political-economic landscape plays when shaping the effects of such externalities.

• Positive Externalities

There are many positive externalities to the Games. An obvious one is the employment that comes with hosting the Olympics. They are expected to generate 250,000 jobs, many directly for Parisians themselves, boosting living standards (Sylvain, 2019). This reallocation of resources

 rom governments to citizens, will undoubtedly bring benefits. They will also affect France as a whole also, with it gaining a chance to gather new tourist opportunities. An expected 15 million tourists will arrive (Menocal Pareja, 2024). This could lead to a multiplier effect as France can advertise itself, and gain more tourists over coming years, who will be inspired by their first trip via the games.

Whilst it is obvious to discuss the new jobs created, other benefits to the city as a whole such as better transport infrastructure. The games will increase capacity on buses, metro and trains by an expected 15% (Muñana, 2024). 

An estimated 45,000 volunteers will aid the running of the Games (Paris 2024, 2024). Whilst unpaid, we can see how popular this opportunity is as nearly 300,000 have applied. This is a prime example of how ‘community spirit’ generated from the Olympics. Externally, the Games can benefit international relationships between governments. Whilst, the average person may not feel this directly, it is undeniable that living in a more stable world is favourable for everyone.

• Negative externalities

Security: A crucial question arises with the organisation of Paris Olympics: will the city be less safe during the event? Described by the French government as the "biggest security challenge France has ever had to organise" (Albertini, 2024), two main concerns arise. Firstly, Paris, already a target for terrorism, could become even more vulnerable during this high-profile event. Secondly, historical data suggests a potential rise in crime rates. A study on crime rates during the 2012 Olympics found a positive correlation between hosting the Olympics and crime in the host city (Le, 2018). Tourists, unfamiliar with the area, are easy targets for pickpocketing, theft, and burglary.

Environment: The organisation of large-scale events inevitably carries significant environmental repercussions. From the construction of new infrastructure to the rise of tourism, these activities contribute to heightened pollution. In light of the Coase theorem, this scenario highlights the inefficiency caused by negative externalities in the absence of well-defined property rights. The inability to achieve a Pareto equilibrium (i.e. the optimal level of pollution) stems from the lack of ownership over polluted air, because it is a public commodity. Thus, bargaining between the polluter and affected parties is impracticable. Consequently, the polluter faces no higher costs for exceeding the socially desirable level of pollution, leading to a situation where social costs, borne by the society, exceed private costs.

• The Tragedy of the Commons

Besides, another negative externality that might happen in Paris is the overcrowding in the public transportation system. There are concerns that with so many visitors over the summer, the already chaotic Paris metro may be unable to cope during the 2024 Olympic Games (Lloyd, 2023). This is closely related to the tragedy of the commons problem, in which, the overexploitation of common goods, which is rival but non-excludable, causes externalities. Each individual who decides to use public transportation contributes to the congestion and overcrowding. As a result, this reduces the comfort of public transportation. Graph 1 illustrates this topic. All individuals seek to maximise their utility when using public transportation. Their utility function is 𝑓(𝑐), and their relative cost is €𝑝𝐶 per unit, so the utility maximising function is equal to 𝑓 𝑐 − 𝑝𝑐𝐶. The maximising point is where marginal utility equals marginal cost (point 𝐴). However, since this is a non-excludable common goods, the entry of people into public transportation continues until the economic profit is equal to zero. The increased consumption from points 𝑐∗ to 𝑐̂ demonstrates this overcrowding issue.

• Internalising the externalities

Economists talk about "internalising externalities" when the full cost (or benefit) of an action falls on the party responsible for it. The organising committee and the French government aim to do this to mitigate the games' adverse effects on society. However, considering the negative externalities of criminality and pollution, fully eliminating risk of crime or achieving zero emissions seems overly ambitious. Although, reducing these negative externalities is certainly achievable. In addressing the heightened risk of crime, the government intends to increase spending on security, thereby partially internalising the externality (Albertini, 2024). Increased security measures will prevent criminality and shift part of the social cost (less security) to the organisers (the producer of the externality). Similarly, the organising committee is tackling the environmental externality by aiming to halve the Games' carbon footprint by taking measures such as prioritising temporary or existing structures (Olympics, 2024).

Summarising

Despite the wide array of positive impacts the 2024 games will bring to Paris, many are only short term benefits which have the potential to turn into long-term liabilities. One example of this is the immense tourism which boasts a large injection of cash into the Paris economy, which can quickly turn into a major pollution problem. However, as with most negative externalities, this is dependent on the ability of the French government to manage such issues. Finally we must note that we are also responsible for preventing negative externalities, so for anyone visiting Paris for the 2024 Olympics: make sure to

recycle!

Reference List

Albertini, A. (2024), Terrorism remains the key challenge at the Paris 2024 Games, Le Monde. Available at: https://www.lemonde.fr/en/france/article/2024/03/06/terrorism-remains-the-keychallenge-at-the-paris-2024-games_6589983_7.html (Accessed: 2 April 2024)

International Olympic Committee (2022). Check the 24 things you do not know about Paris 2024. [online] Olympics.com. Available at: https://olympics.com/en/news/24-things-we-already-knowabout- the-olympic-games-paris-2024. (Accessed: 11 April 2024)

Halving the carbon footprint of the games, olympics.com. Available at: https://olympics.com/en/paris-2024/our-commitments/the-environment/carbon-neutral-games (Accessed: 13 April 2024)

Le, N. (2018), Evaluating Crime as a Negative Externality of Hosting Mega-Events: Econometric Analysis of the 2012 London Summer Olympics, WVU. Available at: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1009&context=econ_workingpapers (Accessed: 2 April 2024)

Lloyd, O. (2023). Chaos in Paris metro leads to further concerns for 2024 Olympics and Paralympics. [online] www.insidethegames.biz. Available at: https://www.insidethegames.biz/articles/1137992/paris metro-2024-olympics (Accessed 13 Mar. 2024).

Menocal Pareja, M. (2024). Paris 2024 facts and figures six months out. [online] www.insidethegames.biz. Available at: https://www.insidethegames.biz/articles/1143455/numbers-paris-2024-nine-budgetspectator#:~:text=The%20main%20protagonists%20will%20be (Accessed 1 Apr. 2024).

Muñana, G. (2023). Paris 2024 promises public transport to all venues. [online] www.insidethegames.biz. Available at: https://www.insidethegames.biz/articles/1143062/paris-2024-promises-public-transport (Accessed 1 Apr. 2024).

Paris 2024 volunteer programme (2024) Paris 2024. Available at: https://www.paris2024.org/en/volunteers/ (Accessed: 01 April 2024).

Sylvain, G. (2019) Economic impact study reveals that Paris 2024 could generate €10.7bn in economic benefits and create 250,000 jobs, Paris 2024. Available at: https://www.paris2024.org/en/economic-impact-study-reveals-paris-2024-could-generateeu107bn-economic-benefits-and-create/ (Accessed: 01 April 2024).