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?