Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/23238
Authors: 
Carbonell-Nicolau, Oriol
Comin, Diego
Year of Publication: 
2005
Series/Report no.: 
Working papers / Rutgers University, Department of Economics 2005,01
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.
Subjects: 
incomplete contract
optimal contract
commitment
renegotiation
JEL: 
L14
Document Type: 
Working Paper

Files in This Item:
File
Size
489.09 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.