Law Commons^™

Climate Choice Architecture, Felix Mormann

Faculty Scholarship

Personal choices drive global warming nearly as much as institutional decisions. Yet, policymakers overwhelmingly target large-scale industrial facilities for reductions in carbon emissions, with individual and household emissions a mere afterthought. Recent advances in behavioral economics, cognitive psychology, and related fields have produced a veritable behavior change revolution. Subtle changes to the choice environment, or nudges, have improved stake-holder decision-making in a wide range of contexts, from healthier food choices to better retirement planning. But the vast potential of choice architecture remains largely untapped for purposes of climate policy and action. This Article explores that untapped potential and makes the …

The Best Way Out Is Always Through: Changing The Employment At-Will Default To Protect Personal Autonomy, Matthew T. Bodie

All Faculty Scholarship

Employment at-will is the default rule of termination for the vast majority of American employment relationships. The rule creates a presumption—a strong one—that the contract for employment allows either party to terminate the contract at any point in time. Since its inception, this bright line rule has given way to carefully curated exceptions, primarily to protect against discrimination and retaliation. This Article proposes that state courts create a new exception to the at-will rule—or, perhaps more accurately, acknowledge an intricacy within the existing default. The personal-autonomy presumption would modify at-will to make clear that employers will not take any action …

Federalism, Regulatory Architecture, And The Clean Water Rule: Seeking Consensus On The Waters Of The United States, Erin Ryan

Scholarly Publications

This article reviews the troubled history of the “Waters of the United States” Rule of the Clean Water Act, and analyzes how its newest incarnation harnesses a surprising point of convergence between the conflicting Supreme Court interpretations in Rapanos v. United States that necessitated its development. While debate over the federalism implications of the Rule rages on, the framework it creates from the multiple Rapanos opinions suggests that the path forward hinges less on the substantive rule of jurisdiction and more on the regulatory architecture of presumptions, default rules, and burden shifting. Splitting the difference between competing judicial approaches, the …

Fractured Markets And Legal Institutions, Herbert J. Hovenkamp

All Faculty Scholarship

This article considers how we can improve legal outcomes of conflicts that occur in very small arenas. The conflicts can be of many kinds, including a nuisance dispute between neighbors, an impending collision between two moving vehicles, a joint decision between spouses about whether or on what terms to continue their marriage, or a disagreement between managers and shareholders within a firm.

The prevailing literature typically refers to these small environments as “markets.” Thinking of them as markets, however, averts our attention from larger environments that should be considered but that often do not function well as private markets. For …

Majoritarian Default Rules In Civil Contract Law: Legal Doctrine And Law & Economics [En Español], Daniel A. Monroy

Daniel A Monroy C

Resumen

El presente trabajo posee dos objetivos complementarios: Por un lado (i) basados en una lectura de la doctrina jurídica civilista en general, se evidencia la existencia de un criterio normativo al que debiera responder las reglas predeterminadas (reglas supletivas) en el derecho de contratos. Por otro lado, (ii) se contrasta e enriquece dicho criterio normativo con los aportes que sobre el mismo punto ha efectuado el Análisis Económico del Derecho (AED). Así, la hipótesis del trabajo se expresa en la idea de que, conforme la doctrina jurídica civilista, las reglas predeterminadas debieran ser el reflejo de lo regular, lo …

There Are Penalty Defaults Rules In The Colombian Contract Law [En Español], Daniel A. Monroy

Daniel A Monroy C

In the late 80s, Ian Ayres and Robert Gertner proposed a supplementary and controversial theory about how to fill gaps in incomplete contracts. Specifically, the authors coined the concept of "penalty default rule", this is a default rule that fills a gap with a term that the majority of parties wouldn't have wanted. Based on this theoretical background, the aim of this paper is to show that indeed, there are penalty defaults rules in the Colombian contract law. To this end, our the paper (i) proposes a methodology to identify hypothetical fact situations in which penalty defaults should be established, …

"Nudging" Better Lawyer Behavior: Using Default Rules And Incentives To Change Behavior In Law Firms, Nancy B. Rapoport

Scholarly Works

This article examines how incentives in law firms can affect lawyer behavior and suggests some possible changes to incentive structures and default rules that might improve the ethical behavior of lawyers.

In the changing landscape of law practice — where law firm profits are threatened by such changes as increased pressure from clients to economize and the concomitant opportunities for clients to shop around for the most efficient lawyers — are there ways to change how things are done in law firms so that firms can provide more efficient and ethical service? This article suggests that an understanding of cognitive …

Personalizing Default Rules And Disclosure With Big Data, Ariel Porat, Lior Jacob Strahilevitz

Michigan Law Review

This Article provides the first comprehensive account of personalized default rules and personalized disclosure in the law. Under a personalized approach to default rules, individuals are assigned default terms in contracts or wills that are tailored to their own personalities, characteristics, and past behaviors. Similarly, disclosures by firms or the state can be tailored so that only information likely to be relevant to an individual is disclosed and information likely to be irrelevant to her is omitted. The Article explains how the rise of Big Data makes the effective personalization of default rules and disclosure far easier than it would …

The Naked Fiduciary, Michelle M. Harner, Jamie Marincic

Michelle M. Harner

Business law is grounded in the common law of fiduciary duty. Courts and policymakers have been loath to abandon that principle. Yet, particularly in the contractual context of limited liability companies (LLCs), the fiduciary label is illusory and may undercut sound governance practices for those entities. This Article presents an in-depth empirical study about governance provisions included in LLC operating agreements and examines the implications of the data in the context of various types of businesses that might choose to organize as LLCs. The Article uses the data and related case studies to offer a new approach to LLC governance …

Parallel Contract, Aditi Bagchi

All Faculty Scholarship

This Article describes a new model of contract. In parallel contract, one party enters into a series of contracts with many similarly situated individuals on background terms that are presumptively identical. Parallel contracts depart from the classical model of contract in two fundamental ways. First, obligations are not robustly dyadic in that they are neither tailored to the two parties to a given agreement nor understood by those parties by way of communications with each other. Second, obligations are not fixed at a discrete moment of contract. Parallel contracts should be interpreted differently than agreements more consistent with the classic …

The Naked Fiduciary, Michelle M. Harner, Jamie Marincic

Faculty Scholarship

Business law is grounded in the common law of fiduciary duty. Courts and policymakers have been loath to abandon that principle. Yet, particularly in the contractual context of limited liability companies (LLCs), the fiduciary label is illusory and may undercut sound governance practices for those entities. This Article presents an in-depth empirical study about governance provisions included in LLC operating agreements and examines the implications of the data in the context of various types of businesses that might choose to organize as LLCs. The Article uses the data and related case studies to offer a new approach to LLC governance …

Auditors' Multi-Layered Liability Regime, Paolo E. Giudici

Paolo E. Giudici

The proposals to limit auditor liability, principally aimed at protecting the Big-4 from the risk of a catastrophic exposure to damages, are grounded on the assumption that auditors are generally over-deterred. The 2008 EC Commission Recommendation on auditor liability relies heavily on this assumption and the economic rationale that underpins it, which is entirely focused on liability towards investors and the US narrative concerning securities class actions. However, the case is much more complex. Any discussion about auditor liability must investigate the following questions: who the auditor’s principals are; whether they are in a position to negotiate in order to …

Interpretive Risk And Contract Interpretation: A Suggested Approach For Maximizing Value, Juliet P. Kostritsky

Juliet P Kostritsky

• The Article offers a theory of judicial intervention and interpretation in Contracts. It posits that the principal objective of courts interpreting, supplementing, or overriding terms is to ask whether such intervention can serve the broad objective of maximizing gains from trade while minimizing transaction costs and the costs of opportunism, collectively, an interpretive risk. It offers an economic rationale for a broad approach to interpretation and explores several examples from Contract law where courts depart from the parties’ textual choices and follow the theory suggested in this Article. These examples directly challenge the theory of the new formalists.

Interpretive Risk And Contract Interpretation: A Suggested Approach For Maximizing Value, Juliet P. Kostritsky

Juliet P Kostritsky

• The Article offers a theory of judicial intervention and interpretation in Contracts. It posits that the principal objective of courts interpreting, supplementing, or overriding terms is to ask whether such intervention can serve the broad objective of maximizing gains from trade while minimizing transaction costs and the costs of opportunism, collectively, an interpretive risk. It offers an economic rationale for a broad approach to interpretation and explores several examples from Contract law where courts depart from the parties’ textual choices and follow the theory suggested in this Article. These examples directly challenge the theory of the new formalists.

Interpretive Risk And Contract Interpretation: A Suggested Approach For Maximizing Value, Juliet P. Kostritsky

Juliet P Kostritsky

• The Article offers a theory of judicial intervention and interpretation in Contracts. It posits that the principal objective of courts interpreting, supplementing, or overriding terms is to ask whether such intervention can serve the broad objective of maximizing gains from trade while minimizing transaction costs and the costs of opportunism, collectively, an interpretive risk. It offers an economic rationale for a broad approach to interpretation and explores several examples from Contract law where courts depart from the parties’ textual choices and follow the theory suggested in this Article. These examples directly challenge the theory of the new formalists.

Private Ordering And The Proxy Access Debate, Scott Hirst, Lucian A. Bebchuk

Faculty Scholarship

This Article examines two “meta” issues raised by opponents of the SEC’s proposal to provide shareholders with rights to place director candidates on the company’s proxy materials. First, opponents argue that, even assuming proxy access is desirable in many circumstances, the existing no-access default should be retained and the adoption of proxy access arrangements should be left to opting out of this default on a company-by-company basis. This Article, however, identifies strong reasons against retaining no-access as the default. There is substantial empirical evidence indicating that director insulation from removal is associated with lower firm value and worse performance. Furthermore, …

Coordinating In The Shadow Of The Law: Two Contextualized Tests Of The Focal Point Theory Of Legal Compliance, Richard H. Mcadams, Janice Nadler

Faculty Working Papers

In situations where people have an incentive to coordinate their behavior, law can provide a framework for understanding and predicting what others are likely to do. According to the focal point theory of expressive law, the law's articulation of a behavior can sometimes create self-fulfilling expectations that it will occur. Existing theories of legal compliance emphasize the effect of sanctions or legitimacy; we argue that, in addition to sanctions and legitimacy, law can also influence compliance simply by making one outcome salient. We tested this claim in two experiments where sanctions and legitimacy were held constant. Experiment 1 demonstrated that …

A Complaint About Payment Law Under The U.C.C.: What You See Is Often Not What You Get, Gregory E. Maggs

GW Law Faculty Publications & Other Works

In this Essay, Professor Maggs observes that many provisions of U.C.C. Articles 3, 4, 4A, and 5 are misleading. Although the provisions express certain rules, these rules often actually do not apply because the parties have waived them, because the parties have no practical way to enforce them, or because they are predicated on unrealistic assumptions. Professor Maggs laments that this discrepancy between what the U.C.C. says and reality may have deceived the state legislatures that voted to enact the U.C.C., that it may impose costs on businesses and consumers, and that it clearly hinders the education of lawyers and …

Incomplete Contracts In A Complete Contract World, Scott A. Baker, Kimberly D. Krawiec

ExpressO

This paper considers the role that contract doctrine should play in facilitating optimal investment in contractual relationships. All contracts are incomplete in the sense that they do not specify the optimal actions for the buyer and seller in every future contingency. This incompleteness can lead to both under and over-investment in resources specifically targeted to the needs of the other contracting party. To solve these investment problems, economists and legal scholars have looked to complicated contractual solutions and the ownership of assets.

This Article offers another solution: contract doctrine. Specifically, we propose a contractual default rule applicable to all contract …

The Law And Economics Of Contracts, Benjamin E. Hermalin, Avery W. Katz, Richard Craswell

Faculty Scholarship

This paper, which will appear as a chapter in the forthcoming Handbook of Law and Economics (A.M. Polinsky & S. Shavell, eds.), surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four topic areas that correspond to the major doctrinal divisions of the law of contracts. These areas include freedom of contract (i.e., the scope of private power to create binding obligations), formation of contracts (both the procedural mechanics of exchange, and rules that govern pre-contractual behavior), contract interpretation (what consequences follow when agreements are …

On The Stickiness Of Default Rules, Omri Ben-Shahar, John A. E. Pottow

Articles

It was once perceived, and still is commonly taught, that default rules in contract law must mimic efficient arrangements. Otherwise, these rules impose needless transaction costs upon parties who seek to opt out of them to reach more efficient positions. In settings where these costs are high, parties might find themselves "stuck" in a default, unable to reach the outcome that they prefer. The strong version of this account-that the only factor that can make an inefficient default rule stick is the direct cost of drafting a tailored provision-has been gradually reappraised. It is by now recognized that factors beyond …

Contracts – Only With Consent, Ronald J. Mann

Faculty Scholarship

My friend and former colleague Omri Ben-Shahar has established a reputation for providing nuanced and well-grounded applications of economic analysis to important problems of contract law. In recent years, he has undertaken the ambitious task of exploring a significant topic at the boundary of contract law: liability for problems that arise out of efforts to form a contract. The essay to which I reply, Contracts Without Consent: Exploring a New Basis for Contractual Liability, is his second work on that topic, following his 2001 article with Lucian Bebchuk entitled Precontractual Reliance. Collectively, these pieces provide a comprehensive analysis …

Reconsidering Estoppel: Patent Administration And The Failure Of Festo, R. Polk Wagner

All Faculty Scholarship

Last Term, in Festo Corporation v. Shoketsu Kinzoku Kogyo Kabashuki Co., the United States Supreme Court missed perhaps the most important opportunity for patent law reform in two decades. At the core of the failure to grasp the implications of "prosecution history estoppel" - a judicially-crafted principle limiting the enforceable scope of patents based on acts occurring during their application process - is the heretofore universal (but ultimately unsupportable) view of the doctrine as an arbitrary ex post limitation on patent scope. This Article demonstrates the serious flaws in this traditionalist approach, and develops a new theory of prosecution history …

Inertia And Preference In Contract Negotiation: The Psychological Power Of Default Rules And Form Terms, Russell Korobkin

Vanderbilt Law Review

In The Problem of Social Cost,' the foundational article of the law and economics movement, Ronald Coase suggested that when transaction costs are zero, the initial allocation of a legal entitlement is irrelevant to its eventual ownership. Assuming no transaction costs, the Coase Theorem predicts that if party A values an entitlement more than does party B, A will keep the entitlement if it is initially allocated to him, and he will buy it if it is originally allocated to B. This powerful insight depends on the behavioral assumption that an individual's valuation of entitlements does not depend on ownership; …

What's In A Name: An Argument For A Small Business Limited Liability Entity Statute (With Three Subsets Of Default Rules), Dale A. Oesterle, Wayne M. Gazur

Publications

The recent proliferation of small business entity forms is primarily a result of their tax characterization. With the recent adoption of the IRS "check-the-box" regulations and, as a consequence, the elimination of traditional tax distinctions, many of these forms have lost their appeal. This article proposes starting over with one form, the "limited liability entity." Part I discusses the history of small business forms. Part II analyzes the current forms in light of the recent check-the- box legislation. Part III discusses the necessity of and rationale behind a unified entity statute. Finally, Part IV outlines a unified limited liability entity …

Hiding The Ball, Pierre Schlag

Publications

No abstract provided.

Whose Partnership Is It Anyway?: Revising The Revised Uniform Partnership Act's Duty-Of-Care Term, Michael L. Keeley

Fordham Law Review

No abstract provided.

...And Contractual Consent, Randy E. Barnett

Georgetown Law Faculty Publications and Other Works

In Part I, the author contends that when economists persistently ignore the importance of contractual consent, they are missing the crucial problem of legitimacy. In Parts II and IV, he responds to the criticisms of his consent theory of contract advanced by Jay Feinman and Dennis Patterson. Both Feinman and Patterson object to the enterprise in which the author and others are engaging, and he explains why each is wrong to dismiss the current debate over default rules. Finally, in contrast, in Part III the author shows how Steven Burton's theory of default rules, which he finds most congenial, is …

The Sound Of Silence: Default Rules And Contractual Consent, Randy E. Barnett

Georgetown Law Faculty Publications and Other Works

In this article, the author challenges the received wisdom of "gap-filling in the absence of consent" by showing how the concept of default rules bolsters the theoretical importance of consent. He accomplishes this by expanding and refining his analysis of a "consent theory of contract." The author proposes that the concept of default rules reveals consent to be operating at two distinct levels of contract theory. First, the presence of consent to be legally bound is essential to justify the legal enforcement of any default rules. Second, nested within this overall consent to be legally bound, consent also operates to …

Rational Bargaining Theory And Contract: Default Rules, Hypothetical Consent, The Duty To Disclose, And Fraud, Randy E. Barnett

Georgetown Law Faculty Publications and Other Works

The author begins by responding to Coleman's rational choice approach to choosing default rules. In part I, he applies the expanded analysis of contractual consent and default rules that he had recently presented elsewhere to explain how rational bargaining, hypothetical consent, and actual consent figure in the determination of contractual default rules. Whereas Coleman advocates the centrality of rational bargaining analysis to this determination, the author explains why rational bargaining theory's role must be subsidiary to that of consent.

The author then turns his attention to Coleman's appraisal of contracting parties' duty to disclose information concerning the resources that are …