Slides

Purpose

Under positive transaction costs, contracts are likely to be incomplete.

Contract theory and, in particular, the study of incomplete contracts developed by "New Property Rights School" provide a framework that helps to explain why alternative allocation of property rights matter for efficiency. Moreover, they give us an interesting "second best" definition of efficient property rights that is missing in the first best world of standard economic theory. Standard incomplete contract theory focuses on the efficient arrangements that arise under alternative technological characteristics of the economy including the human capital endowments of the agents. In this course we will extend the assumptions concerning the incompleteness of contracts and examine the feedback of ownership arrangements on property rights. We will consider alternative self-reinforcing relation between property rights and technology and argue that their interactions can be better treated in terms of "institutional complementarities".

  The aim of the course is to deepen the study of property rights and contract theory to provide a framework for the comparative analysis of alternative economic systems. We will also introduce some basic concepts of Institutional Economics and give examples of alternative models capitalism, including the form of “Intellectual Monopoly Capitalism”, which has emerged in the recent decades.

Course outline

A. Dimensions of scarcity, transaction costs analysis and the Economics of Institutions.

Readings:

*Coase R. H. (1988) The Firm, the Market and the Law. The University of

Chicago Press. Chicago and London.

Pagano U., Vatiero M. (2015) Costly Institutions as Substitutes: Novelty and Limits of the Coasian Approach. Journal of Institutional Economics. V. 11, N. 2 pp. 265-281.

Pagano U. (1992) Authority, Co-ordination and Disequilibrium: an Explanation of the Co-existence of Markets and Firms. Economic Dynamics and Structural Change. June 1992. Reprinted in G. Hodgson (1993) The Economics of Institutions . Edward Elgar, Cheltenham.

Alchian and Demsetz (1972a) Production, Information Costs and Economic Organisation. American Economic Review, 62 pp. 777-95.

Williamson O. E. (1985) The Economic Institutions of Capitalism. The Free Press, New York. (first 3 chapters)

B. Contract Theory, Incomplete Contracts and Efficient Ownership.

Readings.

Pagano U. (2010) Marrying in the Cathedral: a framework for the analysis of corporate governance. In Pacces A. M. The Law and Economics of Corporate Governance. Edward Elgar, Cheltenham U. K. pp. 264-289

*Hart O. (1995) Firms Contracts and Financial Structure. Clarendon Press,

Oxford.

Pagano U., Rossi A. (2004) Incomplete Contracts, Intellectual Property and Institutional Complementarities. European Journal of Law and Economics.

C. Institutional Complementarities, Intellectual Property and alternatives to New Property rights approach.

Aoki M. (2001) Towards a Comparative Institutional Analysis. MIT Press, .

Pagano U., Rowthorn R. eds. (1996) The Competitive Selection of Democratic Firms in a World of Self-Sustaining Institutions in Democracy and Efficiency in the Economic Enterprise. Routledge London and New York.

*Pagano U. (2013) Technical Assets and Property Rights. In Grandori A. Handbook of Economic Organization. Edward Elgar Cheltenham U. K pp. 337-354.

*Pagano U. (2014) The Crisis of Intellectual Monopoly Capitalism. Cambridge Journal of Economics. Vol 38 pp. 1409-1429.

Recordings of the 2021 lectures can be found here

*Important Readings.