Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76757
Authors: 
Feess, Eberhard
Gerfin, Michael
Muehlheusser, Gerd
Year of Publication: 
2010
Series/Report no.: 
Discussion Papers, Department of Economics, Universität Bern 10-15
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 are, however, 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 also lead to allocative distortions in the form of deterring efficient transfers. Since incumbent teams tend to benefit more from long-term contracts in renegotiations than players do, these must be compensated ex ante by higher wages when agreeing to a long-term contract. Using data from the German Bundesliga, our model predictions are broadly confirmed.
Subjects: 
strategic contracting
rent-seeking
empirical contract theory
long-term contracts
breach of contract
JEL: 
L14
J63
L40
L83
Document Type: 
Working Paper

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