Three and a Half Minutes
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Transcript of Three and a Half Minutes
Three and a Half Minutes
Robert E. Scott & Mitu Gulati
Theories of Contract Stickiness (How Academics Talk)
Faithful Lawyer
Nervous/ Lazy/Faithless Lawyers
LearningExternalities NetworkExternalities Negative Signal
Loss Aversion Nervous Nellies Firm Routines
Elliott v. Peru (2000)
The Sovereign Debt Enforcement Problem (1750-2000)
“The bonds rank pari passu [in payment] with all External Debt”Peru’s Bradies; Prior Commentary
Brussels Court: Means you can collect from Other Creditors
Wide Agreement – Bad Interpretation 2000 (Peru) – settle 01 (Congo) – settle 02 (Congo) – loss 03 (Nicaragua) –
loss 04 (Argentina) –
loss/current 07 (Congo) – settle 09 (Ecuador)
Why Didn’t the Clauses Change? (What Lawyers Said)
100 Plus Interviews (75 lawyers)Initial Answer: Explanations for Meaning
(old)i. Ex Post Expropriation/Subordinationii. Secured Bonds (in 1890s)iii. Chinese Bonds in 1800siv. Blindly Copied from Corporates in late
80s
How Sticky?
350 N.Y. Bonds (1985-2007):8-12 versions 37 changes (20 pre shock; 16 post)
300 U.K. law Bonds (1985-2007):4 versions 12 changes (9 pre shock; 3 post)
80 German law Bonds (1985-2000):2 versions Zero changes
Negative price effect for “Elliott/payment” bonds (until 04); no size, country; reg effects
Lawyer Explanations
Negative Signal (Price Penalty)
Negative Court Effect Likely
Hiding Info From Clients
Misbehaving Clients (Ibanks & Sovs)
False
Maybe (inconsistent with cases)
False (clients know –and no 144A effect)
Maybe
Implications/Insights
Special Value to Old and Vague Clauses – Evolutionary Model
Lawyer Unwillingness to Invest in long-term R&D (despite interest) – Cap Structure?
Effect of Too Much Attention?Sovereigns are Different?
Lawyer Feedback on Project (Quotes)
Waste of Public Resources (we had a grant)
Aren’t you using a Hammer to crush an ant?
I’m not allowing my son to apply to Duke Law
Is this really what law professors spend their time on?