CONTRACTS AS RENT‐SEEKING DEVICES: EVIDENCE FROM GERMAN SOCCER

Eberhard Feess (), Michael Gerfin and Gerd Muehlheusser

Economic Inquiry, 2015, vol. 53, issue 1, 714-730

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, however, are 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 reduce the likelihood of (mutually beneficial) transfers, which generates a trade‐off in the spirit of Aghion and Bolton (1987). Using a data set from the German “Bundesliga,” our model predictions are broadly confirmed. (JEL L14, J63, L40, L83)

Date: 2015
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https://doi.org/10.1111/ecin.12098

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Working Paper: Contracts as Rent Seeking Devices: Evidence from German Soccer (2008)
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