Coarse contract‐setting and behavioral teams

Abstract Among National Hockey League (NHL) player contracts signed from 2011 to 24, over 38% are divisible by $100,000. I show that the bunching of NHL contracts at round numbers is partly driven by teams' coarse contract‐setting. Teams with more coarse contracts have worse performance. Then, I test predictions from a wage‐setting model where optimization costs cause contract rounding. With two measures of management quality, I document a negative relationship between management quality and coarse contract‐setting. Next, I find that coarse contract‐setting is associated with higher pay inequality. Finally, I do not identify spillover effects of changes in minimum salaries on coarse contract‐setting.