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Gulati & Scott, 3 1/2 Minutes: Sticky Contracts. Karl Okamoto Earle Mack School of Law Drexel University. The “ABC” Model*. A clause will change if A < B – C. Where:. A is the cost of change, B is the expected value of the adverse consequence of “no change,” and
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Gulati & Scott, 3 1/2 Minutes: Sticky Contracts Karl Okamoto Earle Mack School of Law Drexel University
The “ABC” Model* A clause will change if A < B – C *Pat. Pending
Where: A is the cost of change, B is the expected value of the adverse consequence of “no change,” and C is the risk that the adverse consequence will occur even if there is a change.
The sense that the Elliott decision was aberrational and unlikely to be followed suggests B continues to be low • The sense that change is costly suggests A is high • The recent examples of trustee structures and limited rights to sue suggest that C is significant • The “short-term” horizon of government issuers suggest B is small • The fact that default is the triggering event and likely to be a supervening contingency suggests that C is high • Observation from other areas of practice that sovereign wealth is idiosyncratic also suggest B is smaller than A. • BUT finding in the companion paper that markets were affected by Elliott suggests that B is real (but relative value?)
