Contracts as Rent‐Seeking Devices: Evidence from German Soccer

17 Pages Posted: 21 Nov 2014

See all articles by Eberhard Feess

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH

Michael Gerfin

University of Bern; IZA Institute of Labor Economics

Gerd Muehlheusser

University of Hamburg; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

Abstract

Recent theoretical research has identified many ways how contracts can be used as rent‐seeking devices vis‐à‐vis third parties, but there is no empirical evidence on this issue so far. To test some basic qualitative properties of this literature, we develop a theoretical and empirical framework in the context of European professional soccer where (incumbent) teams and players sign binding contracts which, however, are frequently renegotiated when other teams (entrants) want to hire the player. Because they weaken entrants in renegotiations, long‐term contracts are useful rent‐seeking devices for the contracting parties. However, they reduce the likelihood of (mutually beneficial) transfers, which generates a trade‐off in the spirit of Aghion and Bolton (1987). Using a data set from the German “Bundesliga,” our model predictions are broadly confirmed.

JEL Classification: L14, J63, L40, L83

Suggested Citation

Feess, Eberhard and Gerfin, Michael and Muehlheusser, Gerd, Contracts as Rent‐Seeking Devices: Evidence from German Soccer (January 2015). Economic Inquiry, Vol. 53, Issue 1, pp. 714-730, 2015. Available at SSRN: https://ssrn.com/abstract=2528798 or http://dx.doi.org/10.1111/ecin.12098

Eberhard Feess (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Michael Gerfin

University of Bern ( email )

CH-3012 Bern
Switzerland
+41 31 631 4092 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerd Muehlheusser

University of Hamburg ( email )

Von Melle Park 5
Hamburg, 20146
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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