Institutional Responses to Uncertainty: Evidence from the Transfer Market

In this paper we examine the organisation of the transfer market for association football players in the English Football League adopting a transactions cost framework. The transfer system for professional footballers is effectively the games labour market and we argue that it is characterised by small numbers bargaining and uncertainty and that therefore the transactions cost paradigm is relevant. We analyse 7,367 league transfers between English Football League clubs covering the seasons 1977-8 through 1993-4. Our results suggest that the transfer market has evolved in distinctive ways in response to informational problems. In particular we identify long term relationships between clubs, well established regional markets and the development of the loan system as rational responses to institutional uncertainty. Our conclusion also contains some observations regarding the implications of recent developments affecting the transfer system.