1 / 13

Three and a Half Minutes

This study examines the phenomenon of contract stickiness and the behavior of lawyers in the context of sovereign debt enforcement. By analyzing case studies, interviews with lawyers, and historical data, the study aims to uncover the reasons behind the reluctance of lawyers to update and innovate contract clauses, despite changing circumstances. The analysis also explores the negative implications of this stickiness, including the loss of valuable information and the potential penalty on bond prices. The study provides insights into the motivations and behaviors of lawyers in the sovereign debt enforcement field.

johncjohnson
Download Presentation

Three and a Half Minutes

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Three and a Half Minutes Robert E. Scott & Mitu Gulati

  2. Faithful Lawyer Nervous/ Lazy/Faithless Lawyers LearningExternalities NetworkExternalities Negative Signal Loss Aversion Nervous Nellies Firm Routines Theories of Contract Stickiness (How Academics Talk)

  3. 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

  4. 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)

  5. Why Didn’t the Clauses Change? (What Lawyers Said) 100 Plus Interviews (75 lawyers) Initial Answer: Explanations for Meaning (old) • i. Ex Post Expropriation/Subordination • ii. Secured Bonds (in 1890s) • iii. Chinese Bonds in 1800s • iv. Blindly Copied from Corporates in late 80s

  6. 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

  7. 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 Lawyer Explanations

  8. 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?

  9. 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?

More Related