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Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Robert E. Scott, Stephen J. Choi, Mitu Gulati
Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Robert E. Scott, Stephen J. Choi, Mitu Gulati
Faculty Scholarship
The phenomenon of “sticky boilerplate” causing inefficient contract terms to persist exists across a variety of commercial contract types. One explanation for this failure to revise suboptimal terms is that the key agents on these transactions, including attorneys and investment bankers, are short sighted; their incentives are to get the deal done rather than ensure that they are using the best terms possible for their clients. Moreover, these agents face a first mover disadvantage that deters unilateral revisions to inefficient terms. If agency costs are indeed driving the stickiness phenomenon, we expect that the pace of revision will vary across …
Variation In Boilerplate: Rational Design Or Random Mutation?, Stephen J. Choi, Mitu Gulati, Robert E. Scott
Variation In Boilerplate: Rational Design Or Random Mutation?, Stephen J. Choi, Mitu Gulati, Robert E. Scott
Faculty Scholarship
Standard contract doctrine presumes that sophisticated parties choose their terminology carefully because they want courts or counterparts to understand what they intended. The implication of this “Rational Design” model of rational behavior is that courts should pay careful attention to the precise phrasing of contracts. Using a study of the sovereign bond market, we examine the Rational Design model as applied to standard-form contracting. In NML v. Argentina, federal courts in New York attached importance to the precise phrasing of the boilerplate contracts at issue. The industry promptly condemned the decision for a supposedly erroneous interpretation of a variant of …
Contractual Arbitrage, Stephen J. Choi, Mitu Gulati, Robert E. Scott
Contractual Arbitrage, Stephen J. Choi, Mitu Gulati, Robert E. Scott
Faculty Scholarship
Contracts are inevitably incomplete. And standard-form or boilerplate commercial contracts are especially likely to be incomplete because they are approximations; they are not tailored to the needs of particular deals. Not only do these contracts contain gaps but, in an attempt to reduce incompleteness, they often contain clauses with vague or ambiguous terms. Terms with indeterminate meaning present opportunities for strategic behavior well after a contract has been concluded. This linguistic uncertainty in standard form commercial contracts creates an opportunity for “contractual arbitrage”: parties may argue, ex post, that the uncertainties in expression mean something that the contracting parties, ex …
The Dynamics Of Contract Evolution, Mitu Gulati, Stephen J. Choi, Eric A. Posner
The Dynamics Of Contract Evolution, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Faculty Scholarship
Contract scholarship has given little attention to the production process for contracts. The usual assumption is that the parties will construct the contract ex nihilo, choosing all the terms so that they will maximize the surplus from the contract. In fact, parties draft most contracts by slightly modifying the terms of contracts that they have used in the past, or that other parties have used in related transactions. A small literature on boilerplate recognizes this phenomenon, but little empirical work examines the process. This Article provides an empirical analysis by drawing on a data set of sovereign bonds. The authors …
Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Faculty Scholarship
Conventional wisdom holds that boilerplate contract terms are ignored by parties, and thus are not priced into contracts. We test this view by comparing Greek sovereign bonds that have Greek choice-of-law terms and Greek sovereign bonds that have English choice-of-law terms. Because Greece can change the terms of Greek-law bonds unilaterally by changing Greek Law, and cannot change the terms of English-law bonds, Greek-law bonds should be riskier, with higher yields and lower prices. The spread between the two types of bonds should increase when the probability of Greek default increases. Recent events allow us to test this hypothesis, and …
Foreword: The Three And A Half Minute Transaction: Boilerplate And The Limits Of Contract Design, Mitu Gulati, Robert E. Scott
Foreword: The Three And A Half Minute Transaction: Boilerplate And The Limits Of Contract Design, Mitu Gulati, Robert E. Scott
Faculty Scholarship
The Hofstra Law Review has organized an “Ideas” symposium around our book manuscript “The Three and a Half Minute Transaction” (see http://ssrn.com/abstract=1937900). The idea for this symposium came from a debate that occurred at a faculty workshop at the Hofstra Law School some months ago where we were presenting our book manuscript. The topics of conversation included the following: the future of the current big-law-firm model, what value lawyers add in commercial transactions that use boilerplate contracts, why (and whether) boilerplate contracts are so slow to change, why law firms do not generally have R&D departments, the resolution of the …