The Impact of Transfer Fees on Professional Sports: An Analysis of the New Transfer System for European Football*

We evaluate the effect of the recently approved transfer system for European professional football which will replace the current system (implemented by the Bosman judgment in 1995). The focus is on the comparison of wages, profits, the length of contracts and investment incentives. Our main findings are that (i) the new regime reduces a player's overall payoff because it increases the new club's renegotiation payoff, and (ii) since training generates a general skill, the new regime will also diminish incentives to invest in the education of young talents, because a new club benefits more from the initial club's investment.     

Predation and mergers: Is merger law counterproductive?

This paper extends the literature on predation and mergers to a multi-firm setting. Two new arguments why predation is rational when a merger is an alternative are provided. First, predation is less prone to the free-rider problem, since mergers concentrate the costs of eliminating a rival with one firm, whereas predation allows the costs to be spread out. Second, predation can be profitable since it limits the negative effects of the bidding competition for the prey. It is also shown that a restrictive merger policy might be counterproductive by “helping” predators avoid the disadvantageous bidding competition for the prey.     

Search in cities

The aim of this paper is to expose the recent developments of urban search models which incorporate a land market into a search-matching framework. Using these models, we will be able to explain why unemployment rates vary within a city, how city structure affects workers’ labor-market outcomes, how unemployment benefits and the job-destruction rate affect the growth of cities and why workers living far away from job centers search less intensively and experience higher unemployment rates than those residing closer to jobs. We are also able to explain why, as compared to whites, black workers spend more time commuting to work but travel less miles and search for jobs over a smaller area.     

Within-series momentum in hockey: No returns for running up the score

Drawing on data from 916 Division 1 men’s college hockey games played during a recent six-year period in the Western Collegiate Hockey Association (WCHA), we find evidence that positive momentum within 458 two-game series does not exist when controlling for team quality. We find that neither victory nor the margin of victory in Game 1 of a two-game series is predictive of the outcome of Game 2. We suggest that loss aversion should be considered in relation to questions of momentum.     

Job search and mobility in developing countries. Theory and policy implications

A labor market model is developed in which the formal sector is characterized by search frictions whereas the informal sector is competitive. We show that there exists a unique steady-state equilibrium in this dual economy. We then consider different policies financed by a tax on firms' profits. We find that reducing the unemployment benefit or the firms' entry cost in the formal sector induces higher job creation and formal employment, reduces the size of the informal sector but has an ambiguous effect on wages. We also find that an employment/wage subsidy policy and a hiring subsidy policy have different implications. In particular, the former increases the size of the informal sector while the latter decreases it.     

A study of political activism in labour courts

We analyse 1234 judicial decisions to estimate political activism amongst judges arbitrating dismissal disputes in Australian labour courts. The political colour of the appointing political party and judges’ work background affect probability of employee success by about 10% points.     

Franchise fee, competition and economic growth

This paper introduces the different kinds of franchise contract bargaining into a macroeconomic model and accordingly researches the relationship between competition and economic growth. In Nash bargaining model/vertical integration we find an inverted-U shaped or a monotonically increasing relationship between the competitive degree of the intermediate goods market and economic growth. In bargaining of the right to manage model/vertical non-integration our result shows an inverted-U shaped or a monotonically decreasing relationship between the competitive degree of the intermediate goods market and economic growth. In addition, there is an overall negative relationship between the competitive degree of the final goods market and economic growth. Especially, our interesting findings that the pricing rule for intermediate goods firm depends not only on market power but also bargaining power are more general. Therefore, we can further explain the firms' vertical control strategy.     

Wage/tenure contracts with heterogeneous firms

This paper investigates equilibria where firms post wage/tenure contracts and risk averse workers search for new job opportunities whether employed or unemployed. We generalize previous work by assuming firms have different productivities. Equilibrium implies more productive firms always offer more desirable contracts. Thus workers never quit from more productive firms for less productive firms. Nevertheless turnover is inefficient as employees with long tenures at low productivity firms may reject outside job offers from more productive firms. A worker who quits to a more productive firm may accept a wage cut. Such wage cuts are compensated by faster “promotion” rates to higher wage levels in the future. We also generalize previous arguments by showing equilibria exist where the distribution of offers contains interior mass points and find equilibrium wage/tenure contracts need not be smooth.     

A theory of rational marriage and divorce

Despite high rates of cohabitation before marriage, and considerable efforts invested in the search for a life partner, a high number of marriages end in divorce. This paper develops a model of household formation and dissolution in which it may be rational for individuals to marry, fully anticipating that they will subsequently divorce. Economies of scale associated with living as a couple rather than in two separate households provide an incentive to marry; problems with free riding in the provision of household collective goods may lead to divorce. Marriages which involve partners who are similar, in tastes or in their productive capacities, and in which private goods are equally shared, are the most likely to be stable. In contrast, marriages which involve very disparate partners, or which share the fruits of market labor very unequally between the partners, are more likely to be shortlived and end in divorce.     

Is America’s National Pastime too time consuming?

World Series telecasts are now an inferior good. Income and the time cost of consumption interact so that a ten percent income increase reduces viewership by 1.8 million households. Increased availability of substitutes reduces ratings but increased drama improves them.     

A test of monopoly price dispersion under demand uncertainty

A test of the predictions of Dana’s (2001) model of monopoly price dispersion under demand uncertainty using ticket price data from Major League Baseball shows that ticket price dispersion changes systematically with demand uncertainty, verifying the predictions of the model.     

Golden cages for showy birds: Optimal switching costs in labor contracts

Under what circumstances do workers sign contracts with high quitting penalties? Our answer points to market transparency. When the worker's performance is privately observed by the incumbent firm, alternative employers face an adverse selection problem. As a result, efficient separations can only take place through involuntary layoffs and there is no role for quitting fees. In contrast, when performance is public, quitting fees are useful devices to appropriate the surplus from workers’ reallocation. Separations are amicable and take the form of quitting after downwardly renegotiating the fees. Qualitative features of contracts are independent of the distribution of ex-post bargaining power. The impact of switching costs on total welfare and its distribution depends on the degree of market transparency and the ex-ante distribution of market power.     

Influence Of Over‐ And Underconfidence On A Marriage Market*

This paper examines misconfidence (over‐ or underconfidence) and marriage proposal strategies in a two‐sided search model with non‐transferable utility. Single agents are vertically heterogeneous—there exists a ranking of marital charm (types). It is shown that there are two externalities to over‐ or underconfident behaviour: someone's over‐ or underconfidence affects: (i) the duration of search for others who directly meet over‐ or underconfident agents; and (ii) the marriage decision of others who directly or indirectly meet over‐ or underconfident agents. Furthermore, these externalities prevent the lowest‐type agents from marrying in an equilibrium.     

The effect of divorce laws on divorce rates in Europe

We analyze the effect on divorce rates of the legal reforms leading to “easier divorce” that took place in Europe during the last four decades. We construct a 54-year-long panel and exploit the different timing and nature of the reforms in divorce laws across countries. The reforms range from countries that legalized divorce to the introduction of no-fault grounds and unilateral divorce. We estimate that the introduction of no-fault, unilateral divorce increased the divorce rate by about 0.6, a sizeable effect given the average rate of 2 divorces per 1000 people in 2002.     

Monopolistic wages or efficient contracts?

Using a representative sample of medium and large firms, this paper explores the process of employment and wage bill determination in the Bulgarian manufacturing sector. The results suggest that, during 1997–2001, the labour market behaviour of these firms was consistent with weakly efficient contracting and employment elasticity with respect to both sales and wages similar to that of the fastest‐reforming Central and Eastern Europe economies. Although a case study using data on sell‐off deals by the Privatization Agency suggests that the largest firms selected for cash privatization may have exhibited higher preference for wage enhancement than employment protection, the results do not bring into question the efficient performance of the post‐crisis labour market in Bulgaria. Importantly, the study rejects the hypothesis that either persistent government stakes or mass privatization may have led to efficiency deterioration.     

Downstream merger with upstream market power

We examine how a downstream merger affects input prices and, in turn, the profitability of a such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.     

Timing constraints and the allocation of time: The effects of changing shopping hours regulations in The Netherlands

A 1996 change in shopping hours regulations in The Netherlands provides an opportunity to study the effects of timing constraints on total time spent in shopping, working, and other activities as well as the timing of these activities. We develop a simple structural model to make predictions about the effects of imposition and relaxation of a timing constraint on time use patterns, and utilize time diary data from 1995, 1997, 1999, and 2000 to examine time use patterns by demographic group before and after the change. In addition to a change in the timing of shopping, we find a nonnegligible increase in the total time spent shopping.     

WHO SEARCHES?*

We consider a directed search model with buyers and sellers and determine whether buyers look for sellers or vice versa. The buyers and sellers can choose to search or wait; what they do in equilibrium depends on the relative size of the two populations and the price formation mechanism. We study bargaining and auctions and find that when one population is much larger than the other the former searches and the latter waits. Under auction with roughly equal populations some buyers and sellers search and some wait. Our results challenge the practice of postulating who searches and who waits.