Law and Economics Commons^™

Law In The Time Of Covid-19, Katharina Pistor

Faculty Books

The COVID-19 crisis has ended and upended lives around the globe. In addition to killing over 160,000 people, more than 35,000 in the United States alone, its secondary effects have been as devastating. These secondary effects pose fundamental challenges to the rules that govern our social, political, and economic lives. These rules are the domain of lawyers. Law in the Time of COVID-19 is the product of a joint effort by members of the faculty of Columbia Law School and several law professors from other schools.

This volume offers guidance for thinking about some the most pressing legal issues the …

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

The textbook model of commercial contracts between sophisticated parties holds that terms are proposed, negotiated and ultimately priced by the parties. Parties reach agreement on contract provisions that best suit their transaction with the goal of maximizing the joint surplus from the contract. The reality, of course, is that the majority of the provisions in contemporary commercial contracts are boilerplate terms derived from prior transactions and even the most sophisticated contracting parties pay little attention to these standard terms, focusing instead on the price of the transaction. With standard-form or boilerplate contracts, this dynamic of replicating by rote the terms …

Some Issues On The Law Of Direct Damages (Us And Uk), Victor P. Goldberg

Faculty Scholarship

When a contract is breached, both U.S. and U.K. law provide that the non-breaching party should be made whole. The Uniform Commercial Code (“UCC”) provides that “[t]he remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed.” The English version, going back to Robinson v. Harman, is “that where a party sustains a loss by reason of breach of contract, he is, so far as money can do it, to be placed in the same situation, with …

Contractual Arbitrage, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

Standard-form contracts are likely to be incomplete because they are not tailored to the needs of particular deals. In an attempt to reduce incompleteness, standard-form contracts often contain clauses with vague or ambiguous terms. Terms with indeterminate meaning present opportunities for strategic behavior well after a contract has been executed. 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 did not contemplate ex ante. This chapter argues that the scope for contractual arbitrage is a direct function of the techniques …

Rule By Data: The End Of Markets?, Katharina Pistor

Faculty Scholarship

This Article explores data as a source and, in their processed variant, as a means of governance that will likely replace both markets and the law. Discussing data not as an object of transactions or an object of governance, but as a tool for governing others on a scale that rivals that of nation states with their law, seems a fitting topic for a special issue that is devoted to the legal construction of markets. Here, I argue that while it may well be the case that law constitutes markets, markets are not the only way in which economic relations …

Anticipating Venezuela's Debt Crisis: Hidden Holdouts And The Problem Of Pricing Collective Action Clauses, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

A creditor who asks for stronger enforcement rights upon its debtor’s default will rationally accept a lower interest rate reflecting the greater expected recovery the exercise of those rights provides. Over a dozen studies, however, have failed to document this basic relationship in the context of the collective action clause, a key provision in sovereign bonds. We conjecture that this failure is because enforcing the rights in question requires collective decision-making among anonymous creditors with different interests, impeding market predictions regarding future price effects. The pricing of rights that require collective enforcement thus turns on whether the market observes an …

Picking The Low-Hanging Fruit: A Short Essay For Michael Klausner, Ronald J. Gilson

Faculty Scholarship

The articles that comprise this issue of the Journal of Corporation Law were first presented at a conference held at the Wharton School and co-sponsored by Wharton together with Columbia and Stanford Law Schools. The event was organized by my friend Peter Conti-Brown, to whom I am grateful for both the thought and the effort. Standing alone, the thought that the conference was warranted would have been extremely generous. However, anyone who has organized a conference knows that the idea for such events can be exciting, but what follows is an amount of work that had it been anticipated would …

Innovation Versus Encrustation: Agency Costs In Contract Reproduction, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

This article studies the impact of exogenous legal change on whether and how lawyers across four different deal types revise their contracts’ governing law clauses in order to solve the problem that the legal change created. The governing law clause is present in practically every contract across a wide range of industries and, in particular, it appears in deals as disparate as private equity M&A transactions and sovereign bond issuances. Properly drafted, the clause increases the ex ante economic value of the contract to both parties by reducing uncertainty and litigation risk. We posit that different levels of agency costs …