Both economic theory and legal theory assume that sophisticated parties routinely aimto write contracts that are optimal, in the sense of maximizing the parties' joint surplus. But more recent ...studies analyzing corporate and government bond agreements have suggested that some contract provisions are highly path dependent, or "sticky," with future agreements only rarely improving upon previous ones.
Analyzing half a million contracts using automated text analysis, this Article demonstrates that the stickiness hypothesis explains the striking lack of dispute resolution clauses that can be found in agreements between even the most sophisticated commercial parties. When drafting these contracts, external counsel rely heavily on templates, and whether a contract includes a dispute settlement provision is almost exclusively driven by the template that is used to supply the first draft. There is no evidence to suggest that counsel negotiate over the inclusion of dispute resolution clauses, nor that law firm templates are revised in response to changes in the costs and benefits of incomplete contracting.
Together, the findings reveal a distinct apathy toward addressing dispute resolution through contracting. From an institutional perspective, this suggests that the role of default rules in contract law is more important than is often assumed. Whereas traditional accounts hold that commercial actors would simply contract around inefficient defaults, the evidence produced in this Article highlights that defaults are significantly important for transactions between even the most sophisticated commercial actors.
Scholars have argued that Senate-approved treaties are becoming increasingly irrelevant in the United States, because their role can be fulfilled by their close but less politically costly cousin, ...the congressional-executive agreement. This study demonstrates that treaties are more durable than congressional-executive agreements, supporting the view that there are qualitative differences between the two instruments. Abandoning the treaty may therefore lead to unintended consequences by decreasing the tools that the executive has available to design optimal agreements.
Regulatory diffusion occurs when an agency adopts a substantially similar rule to that of another agency. Indeed, regulatory texts proliferate just like other forms of law do. While this insight has ...been explored across countries, this dynamic also occurs closer to home: American administrative agencies regularly borrow language from one another. Our research shows that, in recent years, agencies reused one out of every ten paragraphs of the 'Code of Federal Regulations'. These findings are timely given the Supreme Court's call for judges to be less deferential to agency regulatory interpretation. There is thus newfound significance to understanding how legislative rules are written and why. This article explores the descriptive and normative implications of regulatory diffusion. The empirical analysis reveals a fairly steady rate of text reuse, with a notable increase during the Trump Administration - perhaps the result of well-documented staffing problems and vacancies. More generally, the number of both borrowing and lending agencies has increased, with a relatively small number of agencies borrowing text from an increasingly larger group. In other words, regulatory text has diffused from more agencies. This behavior appears to vary by whether the agency is executive or independent in nature. These findings raise important questions about whether such diffusion is desirable, as well as how to interpret the regulations that result. To assess the relevant tradeoffs, we propose that agencies should be required to explain why they are emulating other regulatory texts to allow executive-branch oversight over the practice. We also argue in favor of the 'in pari materia' canon - the idea that similar regulations should be interpreted similarly by judges-and propose ways for judges to determine when and how to apply it.
Contractual Evolution Jennejohn, Matthew; Nyarko, Julian; Talley, Eric
The University of Chicago law review,
06/2022, Letnik:
89, Številka:
4
Journal Article
Recenzirano
Conventional wisdom portrays contracts as static distillations of parties' shared intent at some discrete point in time. In reality, however, contract terms evolve in response to their environments, ...including new laws, legal interpretations, and economic shocks. While several legal scholars have offered stylized accounts of this evolutionary process, we still lack a coherent, general theory that broadly captures the dynamics of real-world contracting practice. This paper advances such a theory, in which the evolution of contract terms is a byproduct of several key features, including efficiency concerns, information, and sequential learning by attorneys who negotiate several deals over time. Each of these factors contributes to the underlying evolutionary process, and their relative prominence bears directly on the speed, direction, and desirability of how contractual innovations diffuse. Using a formal model of bargaining in a sequence of similar transactions, we demonstrate how different evolutionary patterns can manifest over time, in both desirable and undesirable directions. We then take these insights to a real-world data set of over two thousand merger agreements negotiated over the last two decades, tracking the adoption of several contractual clauses, including pandemic-related terms, #MeToo provisions, Committee on Foreign Investment in the United States (CFIUS) conditions, and reverse termination fees. Our analysis suggests that there is not a one-size-fits-all paradigm for contractual evolution. Rather, the constituent forces affecting term evolution manifest in varying strengths across differing circumstances. We highlight several constructive applications of our framework, including how the study of contract negotiation unfolds when price cannot easily be adjusted and how to incorporate other forms of cognitive and behavioral biases into our general framework.
It is a widely held assumption that sophisticated parties prefer arbitration over litigation in international agreements for three reasons. First, the flexibility granted by arbitration would allow ...parties to write dispute settlement clauses that are tailored to their individual preferences. Second, concerns for home biases would provide incentives to remove the dispute settlement process from either parties’ domestic judicial system. And third, a greater ease of enforcement would cause parties to prefer arbitration over litigation.
This study examines the validity of these theoretical claims relying on over half a million contracts filed with the SEC between 2000 and 2016. The results suggest that arbitration clauses are less frequently adopted than clauses referring parties to the domestic court system. If they are included, arbitration clauses serve the specific purpose of strategically reducing the discretion granted to the courts enforcing the decision. Absent serious threats to enforcement, parties prefer courts over arbitration, making arbitration a second-best-alternative to a well-functioning domestic judiciary.
Abstract
Many questions of legal interpretation hinge on whether two groups of people assign different meanings to the same word. For example: Do 18th- and 21st-century English speakers assign the ...same meaning to commerce? Do judges and laypersons agree on what makes conduct reasonable? We propose a new statistical test to answer such questions. In three applications, we use our test to (1) quantify differences in the meanings of specialized words from civil procedure, (2) identify statistically significant differences between judges and laypersons’ understandings of reasonable and consent, and (3) assess differences across various effort standards in commercial contracts (phrases like best effort and good faith effort). Our approach may be readily applied outside the law to quantify semantic disagreements between or within groups. (JEL C10, C12, C55, K12, K41).
A large and growing share of the American public turns to Facebook for news. On this platform, reports about crime increasingly come directly from law enforcement agencies, raising questions about ...content curation. We gathered all posts from almost 14,000 Facebook pages maintained by US law enforcement agencies, focusing on reporting about crime and race. We found that Facebook users are exposed to posts that overrepresent Black suspects by 25 percentage points relative to local arrest rates. This overexposure occurs across crime types and geographic regions and increases with the proportion of both Republican voters and non-Black residents. Widespread exposure to overreporting risks reinforcing racial stereotypes about crime and exacerbating punitive preferences among the polity more generally.
There is a long-standing debate about the relative merits of lawyers and nonlawyers as adjudicators in international dispute settlement. Some argue that lawyers encourage predictability and coherence ...in jurisprudence. Others believe that nonlawyers better protect state interests. Both sides of the debate assume that lawyers are more formalist and nonlawyers more instrumentalist. However, this assumption has never been empirically verified. Combining multiple-imputation, matching, and postmatching regression analysis, we find that panel chairs without law degrees and substantial experience make greater efforts than lawyers to signal adherence to formalist rules and competence in the World Trade Organization’s jurisprudence. The Appellate Body deems the signal credible, in turn rewarding inexperienced nonlawyers with a decrease in reversal rates. Our findings suggest that nonlawyers display levels of formalism that are similar to (if not greater than) those of lawyers, which calls into question one of the classical reservations against nonlawyers serving in adjudicatory positions.
We evaluate the statistical and conceptual foundations of empirical tests for disparate impact. We begin by considering a recent, popular proposal in the economics literature that seeks to assess ...disparate impact via a comparison of error rates for the majority and the minority group. Building on past work, we show that this approach suffers from what is colloquially known as “the problem of inframarginality”, in turn putting it in direct conflict with legal understandings of discrimination. We then analyze two alternative proposals that quantify disparate impact either in terms of risk-adjusted disparities or by comparing existing disparities to those under a statistically optimized decision policy. Both approaches have differing, context-specific strengths and weaknesses, and we discuss how they relate to the individual elements in the legal test for disparate impact. We then turn towards assessing disparate impact of search decisions among approximately 1.5 million police stops recorded across California in 2022 pursuant to its Racial Identity and Profiling Act (RIPA). The results are suggestive of disparate impact against Black and Hispanic drivers for several large law enforcement agencies. We further propose alternative search strategies that more efficiently recover contraband while also exerting fewer racial disparities.
After arrest, criminal defendants are often detained before trial to mitigate potential risks to public safety. There is widespread concern, however, that detention decisions are biased against ...racial minorities. When assessing potential racial discrimination in pretrial detention, past studies have typically worked to quantify the extent to which the ultimate judicial decision is conditioned on the defendant's race. Although often useful, this approach suffers from three important limitations. First, it ignores the multi‐stage nature of the pretrial process, in which decisions and recommendations are made over multiple court appearances that influence the final judgment. Second, it does not consider the multiple actors involved, including prosecutors, defense attorneys, and judges, each of whom have different responsibilities and incentives. Finally, a narrow focus on disparate treatment fails to consider potential disparate impact arising from facially neutral policies and practices. Addressing these limitations, here we present a framework for quantifying disparate impact in multi‐stage, multi‐actor settings, illustrating our approach using 10 years of data on pretrial decisions from a federal district court. We find that Hispanic defendants are released at lower rates than white defendants of similar safety and nonappearance risk. We trace these disparities to decisions of assistant US attorneys at the initial hearings, decisions driven in part by a statutory mandate that lowers the procedural bar for moving for detention of defendants in certain types of cases. We also find that the Pretrial Services Agency recommends detention of Black defendants at higher rates than white defendants of similar risk, though we do not find evidence that these recommendations translate to disparities in actual release rates. Finally, we find that traditional disparate treatment analyses yield more modest evidence of discrimination in pretrial detention outcomes, highlighting the value of our more expansive analysis for identifying, and ultimately remediating, unjust disparities in the pretrial process. We conclude with a discussion of how risk‐based threshold release policies could help to mitigate observed disparities, and the estimated impact of various policies on violation rates in the partner jurisdiction.
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