Testing Out Contractual Incompleteness: Evidence from Soccer

53 Pages Posted: 8 Mar 2005

See all articles by Oriol Carbonell-Nicolau

Oriol Carbonell-Nicolau

Rutgers University

Diego Comin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2005

Abstract

The theory of incomplete contracting is rival to that of complete contracting as a frame of reference to understand contractual relationships. Both approaches rest upon diametrically opposed postulates and lead to very different policy conclusions. From a theoretical viewpoint, scrutiny of the postulates has revealed that both frameworks are reasonable. This paper designs and implements an empirical test to discern whether contracts are complete or incomplete. We analyze a problem where the parties' inability to commit not to renegotiate inefficiencies is sufficient for contractual incompleteness. We study optimal contracts with and without commitment and derive an exclusion restriction that is useful to identify the relevant commitment scenario. The empirical analysis takes advantage of a data set from Spanish soccer player contracts. Our test rejects the commitment hypothesis, which entails the acceptance of the existence of contractual incompleteness in the data. We argue that our conclusions should hold a fortiori in many other economic environments.

Suggested Citation

Carbonell-Nicolau, Oriol and Comin, Diego, Testing Out Contractual Incompleteness: Evidence from Soccer (February 2005). NBER Working Paper No. w11110, Available at SSRN: https://ssrn.com/abstract=663503

Oriol Carbonell-Nicolau

Rutgers University ( email )

Department of Economics
75 Hamilton Street
New Brunswick, NJ 08901
United States
732-932-8621 (Phone)
732-932-7416 (Fax)

Diego Comin (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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