leagues like those of the Netherlands and the Scandinavian countries. These big leagues,
therefore, have larger income sources from ticket sales and broadcast revenues, and are
able to pay higher salaries to their top players than the small leagues. Eventually, the top
players in these small leagues will be drawn away to play in the top leagues. In fact, this
is the basic assumption that we made in the model with exogenous talent availability, i.e.
that top leagues are always able to satisfy their demand for talents from abroad. For this
case, it is easy to demonstrate that a system of transfer fees as compensation for
migrating players can help to remedy the suboptimal supply of talents in the big league.
For the case where talents have to be trained, transfer fees also can help to remedy the
inefficiency of the market. Without any transfer fees the small league will easily lose its
incentive to train talents, and the resulting equilibrium will be one where there is no
migration and undersupply of talents occurs. A system of transfer fees restores the
incentive to install training facilities for the talents in the small league. However, the
number of talents that will be raised can be too large. As the transfer rate to be paid by
the big league decreases demand for foreign talents, the small league will have to export
less talents and can, therefore, employ more and in fact too many talents in their home
league. This inefficiency, engendered by the transfer fee system, however, is smaller than
the inefficiency that the free market without transfer fees produce.
The home-grown rule that prescribes that a certain proportion of the roster of players
should be ‘home-grown’ does not appear to be very effective in reaching the social-
welfare optimum. The reason for its ineffectiveness is that the proportion of home-grown
players should be unrealistically high. For a too low proportion the small league will not
find it worthwhile to train its own talents and an equilibrium will result where only the
big league has training facilities. But, if the home-grown rule is effective, it always lead
to inefficient migration flows. In particular, if migration should be low from a normative
point of view, the home grown rule produces too much migration, and, the other way
round if migration should be high. Note that the European Parliament in a recent
resolution suggested that the home-grown rule should be supported by the European
Commission as a means to restore competitive balance. This paper shows that this rule
can be useful in reaching a more level playing field across leagues. However, this
statement is only true if a home-grown rule is compared with a market with free and
25
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