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Testing Out Contractual Incompleteness: Evidence from Soccer

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Author Info
Oriol Carbonell-Nicolau () (Rutgers University)
Diego Comin () (New York University)

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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.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200501.

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Date of creation: 19 Jan 2005
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Handle: RePEc:rut:rutres:200501

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Keywords: commitment incomplete contracts optimal contracts renegotiation

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Find related papers by JEL classification:
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Helmut Dietl & Egon Franck & Markus Lang, 2006. "Why football players may benefit from the "shadow of the transfer system"," Working Papers 0062, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2007. [Downloadable!]
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