85318 - Economics of Contracts and Incentives

Course Unit Page

Academic Year 2021/2022

Learning outcomes

The course studies the contractual mechanisms adopted in relations between companies, in the labor markets and in the financial markets. At the end of the course, the student is able to evaluate the incentives provided by the various types of contracts and by the rules governing private law contracts, with special reference to the rules governing situations of uncertainty, risk aversion and opportunistic behavior of the parties, contractual liability and optimal remedies. In particular, the student is able to determine the effects of the various contractual clauses on the behavior of the parties and to propose contractual solutions that limit opportunistic behavior.

Course contents

Lesson I
The economic approach to law: review of the fundamental concepts
Bibliographical references:
Parisi, "Positive, Normative and Functional Schools in Law and Economics" European Journal of Law and Economics (2004) ([http://ssrn.com/abstract=586641])
Cooter et al.

Lesson II
Contracts without rights?
Bibliographical references:
Kronman, Contract Law in the Law of Nature (Journal of Law, Economics and Organization, 1985)
Fon, V. and F. Parisi, "Reciprocity-Induced Cooperation" Journal of Institutional and Theoretical Economics (2003) ([http://ssrn.com/abstract=313180])

Lesson III
The Coase theorem: applications and developments
Bibliographical references:
Parisi, “Coase Theorem,” in New Palgrave Dictionary of Economics, 2nd ed. (2010) ([http://ssrn.com/abstract=981282])
Cooter et al.

Lesson IV
The economic functions of contract law
Bibliographical references:
Cooter et al.

Lesson V
An economic model for contract remedies
Bibliographical references:
Cooter et al.
Cenini, M. and F. Parisi, "Positive Interest, Negative Interest and Incentives in Contractual Liability: An Economic and Comparative Analysis" 54 REVIEW OF CIVIL LAW 218-242 (2008)
Parisi, F., B. Luppi and V. Fon, Optimal Remedies for Bilateral Contracts (http://ssrn.com/abstract=1020669)

Lesson VI
Optimal risk allocation in contracts + Contractual remedies: experimental theory
Bibliographical references:
Cenini, M. and F. Parisi, "Risk Allocation between Criminal Clause and Contractual Autonomy" 55 REVIEW OF CIVIL LAW 309-325 (2009)
Bigoni, Maria and Bortolotti, Stefania and Parisi, Francesco and Porat, Ariel, Unbundling Efficient Breach (August 8, 2014). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 695; Minnesota Legal Studies Research Paper No. 14-57. Available at SSRN: http://ssrn.com/abstract=2477973

Lesson VII
Contract and Asymmetric Information
Bibliographical references:
Akerlof, George A. (1970). "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism". Quarterly Journal of Economics (The MIT Press) 84 (3): 488-500
Dari-Mattiacci, Onderstal and Parisi, Inverse Adverse Selection: The Market for Gems (2010) (http://papers.ssrn.com/author=227722)
Parisi, Francesco "The Harmonization of Warranties in European Sales Law: An Economic Analysis" American Journal of Comparative Law (2004) (http://ssrn.com/abstract=276993)


Parisi (2013), The Language of Law and Economics: a Dictionary, Cambridge University Press.
ROBERT COOTER, UGO MATTEI, PIER GIUSEPPE MONATERI, ROBERT PARDOLESI, THOMAS ULEN (2006), The market of rules. Economic analysis of civil law I. Fundamentals
plus some articles indicated in class.
Non-attending students will find useful the exercises contained in:
ROBERT COOTER, UGO MATTEI, PIER GIUSEPPE MONATERI, ROBERT PARDOLESI, THOMAS ULEN (2006), The market of rules. Economic analysis of civil law II. Applications

To borrow or consult the recommended texts in the library, consult the catalog of the Polo Bolognese of the National Library Service at the web page http://sol.unibo.it/SebinaOpac/SebinaYOU.do

Teaching methods

Lectures and class discussions.


Assessment methods

Written test divided into short or multiple choice questions and short essays in which the student must prove that he has acquired the methodology of economic analysis of contracts, discussing the impact of various contractual forms and clauses on the incentives of the parties.
Duration: 2 hours
Students are reminded that exams passed with positive results can be repeated a maximum of once.
The grade of the exam will average with that of the other module 85321 Public Economics and Regulation and recorded as a single result of the integrated course Economic analysis of incentives and regulation c.i. by the didactic manager (prof. G. Fiorentini).


18-23: the student has sufficient preparation and analytical skills, spread however, over just few topics taught in the course, the overall jargon is correct

24-27: the student shows and adequate preparation at a technical level with some doubts over the topics. Good, yet not to articulate analytical skills with the use of a correct jargon

28-30: Great knowledge about most of the topics taught in the course, good critical and analytical skills, good usage of the specific jargon

30L: excellent and in depth knowledge of all the topics in the course, excellent critical and analytical skills, excellent usage of specific jargon.

Teaching tools

Slides, video projector, blackboard, digital blackboard.

Interactive classroom discussions.

Office hours

See the website of Francesco Parisi