EYE ON THE PIE: Too many studies spoil the broth

Keywords Real Estate

Want to build a stadium? Maybe you have a highway in mind? Maybe your highway has a different route from that of another group of enthusiasts? Is your concern a new zoo or an existing art museum?

How about that boysenberry festival? The venerable college in town? That remodeled convention facility? That autoassembly plant? That new wing on the hospital? That new housing development?

Or are you looking at something unquestionably noble? A church, a school, a senior center, a concert hall, a basketball arena?

All these are candidates for economicimpact studies. Those who want to justify their plans or their existence often ask economists to produce economic-impact reports.

My first involvement with such efforts concerned the economic impact of colleges on their communities. That was 1969. A major association of colleges and universities wanted a handbook on how to do such studies. A consultant was hired. This consultant had no competence in the area and an academic subcontractor was engaged. This fine person chose a hungry graduate student (me) to do the work. The result was an inadequate, mechanistic booklet that was copied or mimicked by dozens of colleges across the nation.

What is wrong with economic-impact studies? Most of them have no reason to be done. The only purpose they serve is to put before a money-granting authority (the city council, the state legislature, some foundation) a number that pretends to represent how the annual spending of the event or entity circulates through the community. They are puff pieces for propaganda or ego purposes.

Who cares how much money Indiana University, Purdue University, Ivy Tech State College or any other college circulates? Is Wabash College more significant if it is responsible for the circulation of $11.5 million or $22.7 million per year in Crawfordsville?

There is a legitimate purpose to telling an institution’s story if decision-makers are unaware of what is going on under their noses. Many schools today report on their dimensions. They show how their payroll and employment compares with others in the community. They avoid exaggerated claims.

Will any decision be made about the blueberry festival in Plymouth as the result of an economic impact study? It could be. The city might want to know whether it should continue to support the effort depending on the result of such a study. But few such studies end up being used for making any decision.

Will next year’s Indy 500 or parade be canceled if an economic-impact study comes in below expectations? Will the Colts shift their games to Bloomington and the Hoosiers to New Castle because of an economic-impact study? Never.

Which brings us to the question, what do we mean by economic impact? Is it longterm (as in students graduated and land use) or short-term (as in student dollars spent on pizza)? What is the geographic area of the impact? Does the impact of the minor-league baseball parks in Gary, South Bend and Fort Wayne extend beyond their perimeters to the city or county lines?

Does the impact of an event or institution include possible negative factors? Does the presence of a college increase land values or are all those student renters parasites on the real estate community?

What data does the study use? How good are the data about attendees and merchants participating in the Valparaiso popcorn festival? How available are data about visitors to the Mesker Park Zoo in Evansville?

Economists have differing answers to all these questions. Most studies are done to satisfy the clients. Fortunately, those clients have no idea what the final numbers should be or how the many methodological issues should be approached. Thus, most economists can do their studies without compromising their virtue.

The next time someone wants to use your money for an economic-impact study, find out how they will use the results. If the impact study will have no impact, it need not be done.

Marcus taught economics more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.

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