Testing Out Contractual Incompleteness: Evidence from Soccer
53 Pages Posted: 8 Mar 2005 Last revised: 11 Nov 2022
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Transfer Fee Regulations in European Football
By Gerd Muehlheusser and Eberhard Feess
-
Transfer Fee Regulations and Player Development
By Marko Terviö
-
Rottenberg and the Economics of Sport after 50 Years: An Evaluation
-
Legal Restrictions on Buyout Fees: Theory and Evidence from German Soccer
By Eberhard Feess, Bernd Frick, ...
-
Does the Mobility of Football Players Influence the Success of the National Team?
By Dirk G. Baur and Sibylle Lehmann
-
Free Agency and Employment Transitions in Professional Football
By John Goddard and John O. S. Wilson