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Showing papers on "Principal (commercial law) published in 2015"


Journal ArticleDOI
TL;DR: Factors leading to the occurrence of damage identified in the article confirm that the operation of AI is based on the pursuit of goals, which means that with its actions AI may cause damage; and thus issues of compensation will have to be addressed in accordance with the existing legal provisions.

85 citations


Journal ArticleDOI
TL;DR: In this paper, the authors apply both perspectives on principal-agent relationships to study maverick buying in government procurement and link agency problems to three governance mechanisms: monitoring, training, and guidance.
Abstract: This article utilizes agency theory to explain maverick buying in governmental agencies, that is, noncompliance to centrally negotiated frame agreements. Traditional agency theory assumes the agent to be an opportunistic self-interest seeker. A complementary view of agency problems portrays man as an honest, yet not fully competent, actor; both agents and principals may be burdened by "honest incompetence." We apply both perspectives on principal-agent relationships to study maverick buying in government procurement and link agency problems to three governance mechanisms: monitoring, training, and guidance. We find that guidance and training help to reduce governmental employees' noncompliance, but output monitoring does not. Our findings further indicate that maverick buying is related to goal incongruence and two different types of information asymmetry: Agency problems may arise not only because the agent has information the principal is not aware of but also because the principal may have information the agent is not aware of. Future research in public management using agency theory to study instances of hidden action could benefit from applying a similar dual lens to behaviors previously examined as purely opportunistic.

73 citations


Journal ArticleDOI
TL;DR: Principal-cost theory as mentioned in this paper states that each firm's optimal governance structure minimizes the sum of principal costs, produced when investors exercise control, and agent costs, generated when managers exercise control.
Abstract: The dominant paradigm in corporate law is agency-cost theory, which asserts that the law’s proper role is to reduce managerial agency costs by forcing firms to allocate more control to shareholders. That theory cannot explain why shareholders voluntarily invest in firms that circumscribe their powers to hold managers accountable. This Article introduces principal-cost theory, which states that each firm’s optimal governance structure minimizes the sum of principal costs, produced when investors exercise control, and agent costs, produced when managers exercise control. Because the optimal division of control is firm-specific, firms rationally select from a range of governance structures that empower shareholders to varying degrees. Principal-cost theory generates more accurate empirical predictions than agency-cost theory. It also suggests different policy prescriptions: rather than banning some governance features and mandating others, lawmakers should permit each firm to tailor its structure based on its firm-specific substitution rate between principal costs and agent costs.

26 citations


Journal ArticleDOI
TL;DR: In this paper, the authors make a critical assessment of these trends by focusing on methodological and substantive aspects and conclude that the underpinning of these interpretations is a flawed understanding of the criteria for distinguishing between principals and accessories.
Abstract: The jurisprudence of the International Criminal Court (ICC) up to the Lubanga judgment showed definite interpretive trends on the modes of principal liability. This article aims first to make a critical assessment of these trends by focusing on methodological and substantive aspects. On the one hand, the practice of having resort to theories derived from Continental legal systems, albeit legitimate, is based on a methodology that raises some concerns as to the selection and (mis)interpretation of such theories. On the other hand, the Court has clearly adopted a wide interpretation of some critical elements in which the different modes of principal liability are grounded. This choice has caused a significant expansion of the scope of principal liability as well as a breach of the principles of legality and of individual criminal responsibility. In our opinion, the underpinning of these interpretations is a flawed understanding of the criteria for distinguishing between principals and accessories.This perspective has been overturned by the Katanga judgment, on which the second part of this article will focus. This judgment correctly argues that the distinction between perpetrators and accomplices is grounded only on the autonomous or vicarious character of their contribution to the offence. Furthermore, it follows a partly different approach as to both the methodology and the interpretation of the constitutive elements of principal liability. In our view, this approach better fits both the relevant statutory provision and the basic principles of criminal law.

20 citations


Book ChapterDOI
01 Jan 2015
TL;DR: The principal-agent model as mentioned in this paper assumes that once principals delegate authority to agents, they often have problems controlling them, because agents' goals often differ from their own and because agents often have better information about their capacity and activities than do principals.
Abstract: Agency theory (also known as the principal-agent or principal agency theory/model) describes the relationship between two or more parties, in which one party, designated as the principal, engages another party, designated as the agent, to perform some task on behalf of the principal (Jensen and Meckling, 1976; Moe, 1984; Ross, 1973). The theory assumes that once principals delegate authority to agents, they often have problems controlling them, because agents’ goals often differ from their own and because agents often have better information about their capacity and activities than do principals. The key question of the principal–agent framework is, ‘How does one empower an agent to fulfil the needs of the principal, while at the same time constraining the agent from shirking on their responsibilities?’

16 citations


Journal ArticleDOI
TL;DR: This work considers a principal–agent moral-hazard problem with risk-neutral parties and no limited liability in which the principal has private information and shows that in a large class of environments these distortions vanish if the principal is allowed to offer sufficiently rich contracts.

15 citations


Journal ArticleDOI
TL;DR: In this paper, the authors study a model of delegation with an informed agent, where the principal may impose money burning on the agent as a function of the agent's choice of action, and show that money burning may be part of the optimal contract.
Abstract: In many contracting settings, actions costly to one party but with no direct benefits to the other (money-burning) may be part of the explicit or implicit contract. A leading example is bureaucratic procedures in an employer-employee relationship. We study a model of delegation with an informed agent, where the principal may impose money-burning on the agent as a function of the agent’s choice of action, and show that money-burning may be part of the optimal contract. This result holds even if action-contingent monetary transfers are possible, as long as transfers from the principal to the agent are bounded from below (as in limited liability or minimal wage requirements). In fact, the optimal contract can involve a combination of both efficient monetary incentives and inefficient nonmonetary incentives through money burning. Our model delivers some results novel to the delegation literature. First, money-burning is more likely if the principal is more sensitive to the choice of action than the agent. This is consistent with the perception that there is more bureaucratization in large organizations. Second, money-burning is more likely if the agent’s limited liability constraint is tighter relative to his participation constraint. This implies that a higher minimum wage distorts employment contracts towards using socially wasteful nonmonetary incentives, leading to a Pareto inferior outcome as the agent is still held down to his reservation value through increased money burning.The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2700851

15 citations


Dissertation
01 Jan 2015
TL;DR: In this article, the authors explore the English doctrine of joint criminal enterprise by way of a comparative study and conclude that the current law does not serve this function very well, as its mens rea threshold (some form of recklessness, when proof of intention is needed to convict the principal offender) sets the hurdle for conviction of secondary parties indefensibly low.
Abstract: This thesis explores the English doctrine of joint criminal enterprise by way of a comparative study. Joint enterprise allows for the conviction of an accomplice (S) of an offence (crime B) committed by his associate-in-crime (P) on the basis of S's foresight of its commission by P as a possible incident to their joint criminal venture (crime A). While it is generally accepted that this common law principle needs reforming, successive governments have declined to take on the task. Against this backdrop, this thesis explores whether the contentious features of joint enterprise liability might be reformed by way of common law development. To this end, the thesis examines the doctrine’s constituent elements, its function, underlying rationale and place within the structure of primary and secondary liability. Particular emphasis is put on the specific problems associated with the application of joint enterprise liability in the context of murder. Looking at the functional equivalents of joint enterprise in German law, the thesis challenges the orthodox view that joint enterprise is a head of liability available to the prosecution alongside co-perpetration and aiding and abetting. Indeed, it argues that an inculpatory function of the principle is difficult to justify and suggests that, both historically and as a matter of principle, it is better seen as an exculpatory device aimed at delineating the scope of co-perpetration and aiding and abetting. The thesis concludes that the current law does not serve this function very well, as its mens rea threshold (some form of recklessness, when proof of intention is needed to convict the principal offender) sets the hurdle for conviction of secondary parties indefensibly low. Informed by ideas taken from German law – especially an extended concept of intention known as dolus eventualis – the thesis's principal contention is that English law would do better defining joint enterprise liability in terms of foresight plus endorsement. Indeed, the thesis aims to show that English law was very close to such a conception, and that the common law took a wrong turn in Powell. It concludes that it is still open to the Supreme Court to adopt an endorsement-focussed approach to joint enterprise liability, thereby alleviating concerns that the law in this area is too harsh and over-inclusive, and bringing it closer to the threshold of liability for principal offenders which requires proof of intention. Such an approach would also make the law of complicity more principled and coherent.

14 citations


Journal ArticleDOI
TL;DR: In difference-in-differences analyses of five states that adopt caps on non-economic damages during 2003-2005, strong evidence that patient safety gradually falls after the reforms, relative to control states is found.
Abstract: A principal goal of tort law is to deter negligent behavior, but there is little empirical evidence on whether it does so. We study that question for medical malpractice liability, where prior studies have found weak, often null results. We examine whether state adoption of caps on non-economic damages – a central legal reform that reduces liability risk for providers – affects in-hospital patient safety. We use Patient Safety Indicators (PSIs) – measures of adverse events developed by the Agency for Healthcare Research and Quality – as proxies for overall safety. In difference-in-differences analyses of five states that adopt caps on non-economic damages during 2003-2005, we find strong evidence that patient safety gradually falls after the reforms, relative to control states. We also innovate in methodology, using a new, randomization inference-based approach to assess the statistical reliability of our results.

12 citations



Journal ArticleDOI
TL;DR: In this paper, the authors consider a principal-agent framework with multi-tasking, where the principal has discretion over part of the agency's budget to incentivize his staff in the pick-up of cases.
Abstract: Government agencies typically have a certain freedom to choose among different possible courses of action. This paper studies agency decision-making on priorities in a principal-agent framework with multi-tasking. The agency head (the principal) has discretion over part of the agency's budget to incentivize his staff (agents) in the pick-up of cases. The head is concerned with society's benefits from the agency's overall performance, but also with the organization's public image as formed from its case record and various non-case specific activities. Based on their talent and the contracts offered by the head, staff officials choose which type of task to pursue: complex major, yet difficult to complete cases with an uncertain outcome, or basic minor and simple cases with a much higher probability of success. The size of the agency's discretionary budget influences not only the scale, but also the type of tasks it will engage in. Social welfare is non-monotonic and discontinuous in the agency's budget. Small changes in the budget may cause extensive restructuring from major to minor tasks, or vice versa. A budget cut can improve welfare more than extra budget would, even if resources are below the welfare-maximizing level. For lower binding budgets, the head continues to suboptimally incentivize work on complex tasks, when the agency should have shifted down to simpler tasks. Yet a reluctant head may need to be nudged with more resources to do cases. In determining the discretionary space of the agency head, government can limit the extraction of resources, but thereby also benefits less from the head's expertise. Antitrust authorities serve as one illustration of policy implications for institutional design.

Book ChapterDOI
01 Jan 2015
TL;DR: In this article, the authors discuss several policy justifications for copyright limitations and exceptions and consider the relative utilities of specific and open-ended L&E provisions, concluding that the optimal policy for L&Es may well be to have specific exceptions for categories of justified uses that are relatively stable over time.
Abstract: S | 121 Justifications for Copyright Limitations & Exceptions Pamela Samuelson Professor of Law, Berkeley Center for Law & Technology Berkeley, CA Modern copyright laws grant authors a broad set of rights to control exploitations of their works. Typically tempering the reach of these broad rights are a series of limitations and exceptions (L&Es) adopted by legislatures or sometimes by courts through common law adjudication. L&E provisions in national copyright laws often seem a hodgepodge of special purpose provisions whose policy justifications are sometimes difficult to discern. This essay discusses several policy justifications for L&Es and considers the relative utilities of specific and open-ended L&Es. Its principal focus will be on U.S. law, although it will feature examples of L&Es embodied in other national copyright laws and authorized by international treaties. Part II traces the historical development of L&Es in U.S. copyright law. For the first hundred years of the nation's existence, there were no L&Es in U.S. copyright law, in part because rights were fewer in number and narrower in scope than they became over time. In the late 19th and early 20th centuries, courts invented the exhaustion of rights and fair use doctrines as limits on copyright's scope. These doctrines were codified in the Copyright Act of 1976 ("1976 Act"), although they have continued to evolve in the nearly four decades after their enactment. Less visible, although quite important, are the dozens of other L&Es codified in the 1976 Act. Part III offers eight principled justifications for the existence of these L&Es. One set promotes ongoing authorship. A second recognizes both authorial and broader public interests in news dissemination, freedom of expression, and access to information. A third protects privacy, personal autonomy, and ownership interests of consumers. A fourth aims to fulfill certain cultural and social policy goals. A fifth enables public institutions, such as courts and legislatures, to function more effectively. A sixth fosters competition and ongoing innovation. A seventh exempts incidental uses that lack economic significance. An eighth addresses market failure problems. This Part also discusses some politically expedient exceptions. Part III considers justifications for adopting a flexible and open-ended rule such as the U.S. fair use doctrine. Open-ended rules such as fair use enable copyright law to remain flexible and adaptable over time. Especially in an era of rapid technological change, flexible exceptions such as fair use have some advantages over specific L&Es. The chapter concludes that the optimal policy for L&Es may well be to have specific exceptions for categories of justified uses that are relatively stable over time and for which predictability is more important than flexibility and to have an open-ended exception such as fair use to allow the law to adapt to new uses not contemplated by the legislature. Email: psamuelson@law.berkeley.edu

Journal ArticleDOI
Abstract: In diverse areas—from retirement savings, to fuel economy, to prescription drugs, to consumer credit, to food and beverage consumption—government makes personal decisions for us or helps us make what it sees as better decisions. In other words, government serves as our agent. Understood in light of Principal-Agent Theory and Behavioral Principal-Agent Theory, a great deal of modern regulation can be helpfully evaluated as a hypothetical delegation. Shifting frompersonal decisions to public goods problems,we introduce the idea of reverse delegation, with the government as principal and the individuals as agents. In diverse areas—from retirement savings, to consumer credit, to prescription drug use, to fuel economy and energy efficiency rules, to tobacco consumption, to food and beverage consumption—government makes decisions for us or endeavors to help us make better decisions. In other words, government serves as our agent. Principal-Agent Theory (PAT), broadly applied in economics and political science, can serve as a useful framework for considering the optimal scope and nature of this assistance that our agent, the government, provides. It is quite common to talk about government as the agent of the People in a democratic society (Ackerman 1993). Our focus is not on the People, but rather on an individual person. Accordingly, we are thinking about personal decisions—decisions whose primary effect is on a single principal, an * Professor of Law and Economics, Harvard Law School, 1525 Massachusetts Avenue, Cambridge, MA 02138, E-mail: bargill@law.harvard.edu ** Robert Walmsley University Professor, Harvard Law School. We are grateful to Meirav Furth and Lisa Marrone for excellent research assistance. For helpful comments and discussions, we thank John Beshears, Ryan Bubb, Jacob Gersen, David Laibson, Oliver Hart, Daryl Levinson, and Matthew Stephenson. We are especially grateful to the editors of the JLA and to the referee for their comments and suggestions. 1 For a critical review, see Vermeule (2015). PAT has also been used in political science to characterize and analyze relationships between different government actors, e.g., President and administrative agencies or Congress and administrative agencies (See: Cook & Wood 1989; Gersen 2010). The Author 2015. Published by Oxford University Press on behalf of The John M. Olin Center for Law, Economics and Business at Harvard Law School. This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact journals.permissions@oup.com doi:10.1093/jla/lav005 individual. To this extent, we are excluding cases in which people’s decisions affect others. This is not to say that these personal decisions do not have external effects. Often they do. When people eat unhealthy food, they might affect others as well, especially if they become sick. Whenever nations have welfare systems, making sure that people are healthy, save enough, and borrow prudently may prevent third-party effects. But our focus in this article is on the well-being of the individual, seen as principal. Our central claim here is that read in light of PAT, a great deal of modern regulation can be understood and evaluated as a hypothetical delegation, through which sensible principals delegate authority to those who can make decisions on their behalf. This claim helps cast a fresh light on some objections to apparent paternalism—as, for example, where government requires people to obtain a prescription before using certain medicines, or forbids workers from running certain risks in the workplace. The use of PAT helps to discipline discussions that might otherwise be far too abstract. Adding a behavioral lens, Behavioral PAT (BPAT) helpfully enriches the basic analysis, suggesting that boundedly rational principals will be prone to both insufficient and excessive delegation. One of our principal goals is to enlist PAT and BPAT to distinguish among several distinctive kinds of hypothetical delegations, involving information, default rules, incentives, precommitments, mandates, and prohibitions. Focusing on the benefits and costs of delegation, which depend on its type, we identify the circumstances in which one or another approach makes sense. In the domain of personal decisions, we argue, it is helpful to think about the individual as principal and the government as agent. A different set of regulatory problems—public goods problems—can be conceptualized as a reverse delegation, with the government as principal and the individuals as agents. Here the government-principal, as representative of the People, sets a public objective—a clean, sustainable environment, financial stability, higher educational attainment—and enlists individuals-agents to help attain this objective. Our central argument is that the idea of regulation-as-delegation provides a useful frame for the evaluation and design of regulation. It brings to the fore 2 Saul Levmore’s work (2014a,b) on regulation responding to internalities overlaps with our “personal decisions.” Like us, Levmore writes of individuals soliciting the help of government in dealing with their internalities problems. 3 At the same time, the issue of third-party effects has to be investigated, rather than asserted, when people run risks. For example, premature mortality might reduce, rather than increase, costs for the welfare system, taken as a whole. 4 A behavioral lens has been added to PAT in other contexts (See: Gomez-Mejia & Wiseman 1998; Pepper 2015; see also: Levmore 2014a,b). 2 ~ Bar-Gill and Sunstein: Regulation as Delegation

Journal Article
TL;DR: In this paper, the authors analyzed whether vicarious liability of the principal is a more efficient regulatory approach than personal liability of an agent in delivering digital financial services through agents in developing countries.
Abstract: Limited access to bank branches excludes over one billion people from accessing financial services in developing countries. Digital financial services offered by banks and mobile money providers through agents can solve this problem without the need for complex and costly physical banking infrastructures. Delivering digital financial services through agents requires a legal framework to regulate liability. This article analyses whether vicarious liability of the principal is a more efficient regulatory approach than personal liability of the agent. Agent liability in Kenya, Fiji, and Malawi is analysed to demonstrate that vicarious liability of the principal, coupled to an explicit agreement as to agent rewards and penalties, is the more efficient regulatory approach.


Journal ArticleDOI
TL;DR: In this paper, the principal-agent problem is identified and examined in the context of contract preparation and the drafting party is viewed as an economic agent of the non-drafting party with respect to the particular task of preparing the written contract.
Abstract: This Article identifies and examines the principal-agent problem as it arises in the context of contract preparation. Contracts exist in part to help constrain the opportunistic behavior of an economic agent (the promissor) by alleviating information and control asymmetries that manifest between the agent and the principal (the promissee) after promises have been made. The preliminary task of preparing the contract, however, is not viewed as part of the economic agency analysis. This Article suggests that the drafting party should be understood and examined as an economic agent of the non-drafting party with respect to the particular task of preparing the written contract. While preparing the contract on behalf or for the benefit of both parties, the drafting party faces the same moral hazard confronted by all agents, with potentially devastating results. “Repeat players” or parties with superior bargaining power may prepare contracts utilizing the same information and control asymmetries to take advantage of the non-drafting party. The economic agency relationship that exists with respect to contract drafting provides a superior framework for understanding not only the inability of the non-drafting party to control the drafting party but also the differing interests between the parties that motivate the drafting party to act opportunistically in the first place.

Journal ArticleDOI
TL;DR: It is shown that all outcomes of any game in which principals delegate the final decisions to the agent using arbitrary mechanisms can be characterized by studying a simpler game inWhich principals can offer only menus of decisions and send cheap-talk signals to theAgent.

13 Aug 2015
TL;DR: In this paper, the authors analyze the management opinions of three public service board (PSB) universities in indonesia dealing with the good university income generating governance and find that the principles of good university incoming generating governance are law-abiding, academic oriented, accountable, profesional, independent and transparent.
Abstract: The objective of this study aims to comprehend and portray the management opinions of the three Public Service Board (PSB) universities in indonesia dealing with the good university income generating governance. Furthermore, this study applies epistemological subjectivism, interpretivism paradigm with multi-site design. The Finding were analyzed using agency theory perspective. therefore, the finding result show that the principles of good university incoming generating governance is law-abiding,academic oriented, accountable, profesional, independent and transparent. The emergence of principle of law - abiding indicate hierarchical relations agency that is purely between the government and the universities in income generation. The principle of academic orientation, accountability, independence and autonomy suggests that the goal synergy of both principal and the agent are the essense of agency relatoinship. Meanwhile, the professionalism demonstrated that the agent fully realized wihch the pincipal required. Yet, independence gained through wide autonomy both on academic as well as non-academic matter. The priciple of transparency demonstrates the importance of the information factor in agency relationship. Agent transparancy is necessary for the principal due to the difficulty in obtaining onformation dealing with the headway of agent itself. Keyword : Good University Governance, Income Generating, Agency Theory

Posted Content
TL;DR: In this paper, the authors evaluate the residual and inferior status of common purpose liability by comparing the ICC's application of Common Purpose Liability and joint perpetration and conclude that common purpose Liability in theory stipulates lower actus reus and mens rea standards than Joint perpetration.
Abstract: On 7 March 2014, Trial Chamber II of the International Criminal Court (ICC) convicted Germain Katanga for war crimes and crimes against humanity. Katanga’s conviction is based on the concept of common purpose liability as stipulated in Article 25(3)(d) of the Rome Statute. This liability theory establishes criminal responsibility for wilfully or knowingly contributing to the crimes of a group of persons acting with a common purpose. The ICC regards common purpose liability as a residual liability theory, which provides for a lower level of blameworthiness than principal forms of criminal responsibility, such as joint perpetration. This article appraises the residual and inferior status of common purpose liability by comparing the ICC’s application of common purpose liability and joint perpetration. The comparison makes clear that common purpose liability in theory stipulates lower actus reus and mens rea standards than joint perpetration. However, in practice the ICC applies the requirements of common purpose liability and joint perpetration in a context-dependent way in interplay with the particular facts of individual cases. It can therefore not be concluded in general terms that common purpose liability by definition constitutes a less serious type of criminal responsibility than joint perpetration. Instead, it is preferable to adopt a flexible approach, which recognizes that common purpose liability covers a variety of conduct entailing different levels of blameworthiness.

Journal ArticleDOI
Cliff Farhang1
TL;DR: In this article, it is argued that state practice is unable to settle the controversy concerning the scope of the concept of self-defence and that the question whether or not valid invocation of Article 51 Charter must be preceded by a state's breach of the general prohibition can be conclusively answered only as part of efforts geared to devising an explanatory account of selfdefence which accurately translates its normative origins and which preserves its logical relations with the other, more ordinary but fundamental legal concepts.
Abstract: Roberto Ago, the International Law Commission’s second Special Rapporteur on the topic of state responsibility for internationally wrongful acts, defined self-defence as a faculte of a state to use force in response to an act of another state through which a breach of the principal obligation under Article 2(4) Charter is committed. On this basis, he then inserted a provision in Chapter V to Part One of the Draft Articles on State Responsibility expressing self-defence as a specific factual circumstance precluding the wrongfulness of the use of force which constitutes a response to state aggression. This conception of self-defence, although misunderstood from the onset, remained in the backdrop of the study of the law of state responsibility for a considerable period. It was only dismantled during the reign of the last Special Rapporteur on the topic of state responsibility, James Crawford. The last Rapporteur, at the onset, submitted that it is not the function of the Draft Articles to specify the content of the primary rules, including that referred to in Article 51 Charter. He then redefined the function of the circumstance of self-defence as that of precluding the wrongfulness of non-performance of certain obligations other than the general prohibition insofar as such non-performance is connected with the exercise of the right under Article 51 Charter. This contribution first scrutinises this paradigmatic shift and finds it to be symptomatic of the conviction on the part of Crawford that the notion of self-defence could also encompass the use of force against speculative threats of state origin as well as actual threats that emanate from individuals or groups which are disconnected from the organisation of any state. It then uses this finding as a springboard towards the examination of the controversy surrounding the notion of self-defence under international law. In that connection, it first outlines the findings of the World Court on the requirements of armed attack and attribution and describes the points of criticism which those findings have elicited. Next, it argues that state practice is unable to settle the controversy concerning the scope of the concept of self-defence and that the question whether or not valid invocation of Article 51 Charter must be preceded by a state’s breach of the general prohibition can be conclusively answered only as part of efforts geared to devising an explanatory account of self-defence which accurately translates its normative origins and which preserves its logical relations with the other, more ordinary but fundamental legal concepts. The study’s conclusion is that respect for such criteria demands that the notion of self-defence under international law be defined in line with Ago’s proposition, i.e. in terms of a de facto situation, recognised by a secondary rule, whereby the principal obligation under the primary rule contained in Article 2(4) Charter is pushed into abeyance to the detriment of a state which conducts itself in breach of that very same obligation in respect of another state; or, correlatively, in terms of a factual circumstance precluding the wrongfulness of the use of force which constitutes a riposte to an unlawful armed attack of another state.

Journal Article
TL;DR: In this article, the principal-agent problem is identified and examined in the context of contract preparation and the drafting party is viewed as an economic agent of the non-drafting party with respect to the particular task of preparing the written contract.
Abstract: This Article identifies and examines the principal-agent problem as it arises in the context of contract preparation. Contracts exist in part to help constrain the opportunistic behavior of an economic agent (the promissor) by alleviating information and control asymmetries that manifest between the agent and the principal (the promissee) after promises have been made. The preliminary task of preparing the contract, however, is not viewed as part of the economic agency analysis. This Article suggests that the drafting party should be understood and examined as an economic agent of the non-drafting party with respect to the particular task of preparing the written contract. While preparing the contract on behalf or for the benefit of both parties, the drafting party faces the same moral hazard confronted by all agents, with potentially devastating results. “Repeat players” or parties with superior bargaining power may prepare contracts utilizing the same information and control asymmetries to take advantage of the non-drafting party. The economic agency relationship that exists with respect to contract drafting provides a superior framework for understanding not only the inability of the non-drafting party to control the drafting party but also the differing interests between the parties that motivate the drafting party to act opportunistically in the first place.

Journal Article
TL;DR: The Federal Open Market Committee (FOMC) is the most important agency in the United States and has been the subject of a great deal of attention in the last few decades as discussed by the authors.
Abstract: I INTRODUCTION The Federal Open Market Committee (FOMC), which controls the supply of money in the United States, may be the country's most important agency. (1) The chair of the committee is often dubbed the second most powerful person in Washington, only deferring to the President himself. (2) Financial scholars and analysts obsess over the institution, leading to a rich tradition of FOMC Kremlinology, veneration, and second-guessing in business schools and economics departments. (3) But legal scholars have been less entranced by the committee--put off, perhaps, by the fact that the institution has never been checked by the courts or by the Administrative Procedure Act (APA). (4) As a result, there has been no effort to come to grips with the administrative law of the FOMC; this article seeks to redress that gap. The FOMC enjoys a legal mandate that shields its discretion to a remarkable degree. The principal claim here is that this shield, combined with the imperatives of bureaucratic organization in an institution whose raison d'etre is stability, has turned the FOMC into an agency governed by internally developed tradition in lieu of externally imposed constraints. The makeup of the committee, the materials that it consults before rendering monetary policy decisions, its voting mechanisms, and the way its decisions are promulgated are products of a melange of evolving tradition and statutory permissiveness. One might argue that some combination of law and tradition explains what happens in most agencies. But the degree of reliance on tradition sets the FOMC apart. No one worries about the customs governing evidence presentation and voting order on multimember boards like the Securities and Exchange Commission (SEC) or the National Labor Relations Board (NLRB), but they are subjects of scrutiny at the FOMC. By the same token, APA law, rather than traditions such as that of the FOMC's so-called "beige book," governs what goes into the record before, say, the EPA or Commerce Department make their factual findings. (5) And Supreme Court decisions like Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Insurance Co. mean that the decisions rendered by most agencies are substantially lengthier, and strive for substantially less ambiguity, than those of the FOMC. (6) It is possible that this sort of development of routinized custom might be expected for agencies with few legal constraints. If so, the FOMC is a fine example of an institutional tendency, one that might have particular application in other forms of financial regulation. A mix of tradition and legal constraint are a feature of administrative constraint in that field, where litigation providing definitive opinions on required process is rare, and informal--and often nontransparent--oversight a norm. An account of the FOMC that jibes with the way this sort of regulation works might serve as a prod or a comparator for other accounts of the administrative law of financial oversight. Given this theme, the article makes the following additional points: 1. The FOMC enjoys the sorts of broad delegations that other New Deal agencies benefit from, only more so; the orders issued by the committee at the conclusion of each of its eight annual meetings do not fit within the traditional paradigms of administrative rulemaking or adjudication, leading courts to eschew any effort to review those decisions as committed to the agency's discretion. (7) 2. Given its free hand, the FOMC might be expected to be an empire builder. But in reality, it has only expanded its remit with regard to the sort of transactions it takes on, which have moved beyond the purchase and sale of federal government debt to include positions in a broader range of financial assets, as the financial crisis exemplified. 3. The modest problems that the FOMC has endured at the hands of the branches that monitor independent agencies like it--the courts and Congress--have reflected its extraordinary independence and relative opacity. …

Journal Article
TL;DR: In this paper, the authors examine the extent to which managers, in their personal capacity, should be subjected to liability (personal liability) in order to better deter excessive corporate risk-taking.
Abstract: INTRODUCTIONThere has been significant frustration with the Obama administration,1 as well as with foreign governments,2 for not seeking criminal or even civil liability against individuals responsible for the excessive risk-taking that was a principal cause of the 2008-2009 global financial crisis (the financial crisis) and its associated banking failures.3 Despite criticism-and against the historical trend during much of the twentieth century4-few financial executives have been prosecuted.5 Rather, the primary focus of prosecutors has been the financial firms themselves.6Numerous firms have been fined for activities related to the financial crisis, including the origination, packaging, and sale of mortgage-backed securities. These fines are certainly substantial7-aggregating in the tens of billions of dollars,8 which is comparable if not larger than the aggregate yearly income of the largest financial firms.9 But from the perspective of multiple-year earnings, some experts view the fines as simply the "cost of doing business."10 Professor Coffee similarly claims that "the SEC is settling cheaply with entities and ignoring individuals-a policy of parking tickets for securities fraud."11Whether or not firms are settling cheaply, the real concern is that, being managed by individuals, firms themselves are second-best targets of deterrence.12 Targeting managers in their personal capacity is thus widely viewed as a greater,13 if not also a more optimal,14 deterrent than firm-level liability. Better deterrence is critical because insufficient deterrence could sow the seeds-as may already be occurring15-for future systemic meltdowns.16 The consequences could be horrific. The financial crisis itself was an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets . . . . High risk lending [and other activities] contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets.17Moreover, in addition to increasing deterrence, targeting managers in their personal capacity can help to increase accountability and fairness:[W]hen it comes to financial fraud, the [U.S. Justice] department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them. We believe that doing so is both important-and appropriate-for several reasons: First, it enhances accountability . . . [because] corporate misconduct must necessarily be committed by flesh-andblood human beings. . . .Second, it promotes fairness-because, when misconduct is the work of a known bad actor, or a handful of known bad actors, it's not right for punishment to be borne exclusively by the company, its employees, and its innocent shareholders.And finally, it has a powerful deterrent effect.18This Article examines the extent to which managers, in their personal capacity, should be subjected to liability (personal liability) in order to better deter excessive corporate risk-taking.19 Individuals potentially can be subjected to criminal liability and to non-criminal liability. Criminal personal liability ordinarily involves incarceration and sometimes involves monetary penalties. Non-criminal (or civil) personal liability ordinarily involves only monetary penalties.Because this Article is concerned with deterring excessive corporate risk-taking, it focuses on personal liability in the form of monetary penalties. Excessive corporate risk-taking is not-and arguably should not be20- criminal per se, or even criminally fraudulent.21 Although most of the actions leading to the financial crisis represented excessive corporate risk-taking, that risk-taking largely resulted from poor decisions, bad judgment, and greed- and not criminal intent.22 The head of the Criminal Division of the U.S. Department of Justice has likewise recognized the inapplicability of criminal law to deter excessive corporate risk-taking:I've literally had lawyers and U. …

Journal Article
TL;DR: In this paper, the authors present a detailed study of all of the sales-related trade usage cases digested under the Uniform Commercial Code's trade usage provision from 1970 to 2007 and conclude that significant commercial law reform is warranted.
Abstract: INTRODUCTIONThe Uniform Commercial Code (Code) directs courts deciding disputes between merchants to look to usages of trade and other commercial standards and practices to interpret contracts and fill contractual gaps. This so-called incorporation approach1 was the brainchild of the Code's principal drafter, Karl Llewellyn, and was an important application of legal realist philosophy to commercial law.2 The incorporation approach was both endorsed and expanded in the most recent proposed revision of Articles 1 and 2 of the Code.3 It is also at the jurisprudential heart of many of the most important international commercial law statutes,4 including the recently completed Common European Sales Law.5The Code's incorporation strategy has been in operation in U.S. courts for over seventy years and has influenced the development of commercial law around the world; yet the justifications for the strategy have always been predominantly theoretical. The conceptual model underlying the strategy has never been tested or even evaluated against the reality of the way that its trade usage component operates in practice. This Article presents a detailed study of all of the sales-related trade usage cases digested under the Code's trade usage provision from 1970 to 2007. It then draws on the study's findings to reevaluate the core justification for the strategy, namely that as compared to a more formalist (agreement-centric) approach to interpretation, incorporation decreases specification costs without unduly increasing interpretive error costs.6Subject to the usual methodological limitations of studies based on reported cases, the study reveals that the trade usage component of the incorporation strategy works very differently in practice from the way that it has long been assumed to work in theory. The study demonstrates that interpretive error costs are likely to be higher than theorists assume since the types of "objective" evidence of trade usages that incorporation's defenders suggest will minimize the risk of interpretive errors7-such as expert witness testimony, trade codes, and statistical evidence-are not routinely introduced in sales-related litigation. Rather, in a majority of cases, the existence and content of usages was proven solely through the testimony or affidavits of the parties and/or their employees, a type of testimony that may be either deliberately or subconsciously self-serving.8 In addition, there was not a single case in which either party introduced any data that the alleged usage was regularly observed. The study also suggests, though by no means proves, that given the weak evidentiary basis of trade usage determinations, the Code's permissive parol evidence rule, and the ways that courts have interpreted the Code's hierarchy of authority, the incorporation strategy is unlikely to reduce-and may even increase- specification costs in many transactional contexts.In light of these and other findings about the incorporation strategy's effect on motions for summary judgment, transactors' ability to engage in litigation-related strategic behavior, and the interaction of the strategy and the operational policies and contract administration mechanisms used in large multi-agent firms, this Article concludes that significant commercial law reform is warranted. More specifically, it suggests that if commercial law is to effectively meet the needs of the modern outsourced and highly innovation-dependent economy, its background interpretive presumptions should be shifted in the more formalist/agreement-centric direction of the New York common law, at least in transactions between large business entities.Part I explores the statutory framework and commonly articulated evidentiary standards for incorporating trade usages into commercial agreements. It also discusses the ways that courts have interpreted and applied the Code's hierarchy of authority to permit usages to largely override express terms. …

Journal ArticleDOI
TL;DR: In this paper, the third-party beneficiary doctrine is used to regulate third party claims against contract parties with the third party beneficiary doctrine, which directs courts to ask whether the contracting parties “intended” to benefit a particular third party.
Abstract: An increasing trend of economic agents is to form productive associations such as networks, platforms, and other hybrids. Subsets of these agents contract with each other to further their network project and these contracts can create benefits for, or impose costs on, agents who are not contract parties. Contract law regulates third party claims against contract parties with the third-party beneficiary doctrine, which directs courts to ask whether the contracting parties “intended” to benefit a particular third party. We show here what courts do with third party claims when network members fail to perform for third parties and what the law’s best responses to such breaches should be. Among our principal results are that courts honor third party claims when contract members likely can price them and when third parties incur substantial reliance losses, but protect thirdparty interests less frequently than they should and refuse relief when contract members can identify the potential beneficiary class but not every agent who is likely to be in it.

Journal ArticleDOI
TL;DR: In this article, the authors examined the motivations created by the use of incentive fees (or promoted interests) in private equity (real estate or otherwise) through the lens of traditional principal/agent problems, and suggested that lowering both the investor's preferred return and the manager's promoted interest in a manner that maintains the expected value of the promoted interest improved that alignment of interests.
Abstract: The motivations created by the use of incentive fees (or promoted interests) in private equity (real estate or otherwise) are examined through the lens of traditional principal/ agent problems. In general, in-the-money promotes tend to create conservative actions by the manager (or agent), and out-of-the-money promotes tend to create risky actions. These incentives are mitigated, however, by a number of factors, including the “moneyness” (the degree to which the promoted interest is in the money) of the promote, the dispersion of potential choices, concerns about future fund-raising efforts, and the changing shape of the manager’s utility curve over time (as the manager experiences other gains and losses). Because these incentive fees are intended to improve the alignment of interests between the principal and the agent, this article suggests that lowering both the investor’s preferred return and the manager’s promoted interest—in a manner that maintains the expected value of the promoted interest—improves that alignment of interests. Finally, this article also suggests that the use of indexed preferences, rather than a fixed percentage, ought to better serve investors.

Journal ArticleDOI
TL;DR: The Indian Transfer of Property Act of 1882 as mentioned in this paper was the first codification of the common law in India by the British colonial government and was much more than an attempt to clarify the law and render it more certain, it was a deeply strategic exercise, wherein substantive legal rules provided the colonial government with a convenient, unnoticed, and indirect means by which to introduce farreaching institutional and political reforms.
Abstract: The nineteenth-century codification of the common law in India by the British colonial government was much more than an attempt to clarify the law and render it more certain. It was in addition a deeply strategic exercise, wherein substantive legal rules provided the colonial government with a convenient, unnoticed, and indirect means by which to introduce far-reaching institutional and political reforms. Principal among these reforms was curtailing the fecundity of Indian customary law and judicial lawmaking. The codification of property law—in the Indian Transfer of Property Act of 1882—proved to be a perfect vehicle for true reforms. This Article reveals how two central features of property law allowed these changes to be realized with ease. The first of these is property law's presumptive affinity for crystalline (or bright-line) rules, a feature that the codifiers used to curtail the further development of the law by Indian judges. The second is the notion that property forms and institutions need to be standardized, which is the core idea behind the numerus clausus principle. The codifiers used this feature in turn to constrict Indian customary practices that related to property. The Article refers to the codifiers' use of these features as the “crystallization” and “standardization” strategies, respectively, and argues that their effects continue to be felt to this day in the everyday working of the Act of 1882.

Journal ArticleDOI
TL;DR: In this paper, the authors show that the law's best response to such breaches should be to protect third party interests less frequently than they should and refuse relief when contract members can identify the potential beneficiary class but not every agent who is likely to be in it.
Abstract: An increasing trend of economic agents is to form productive associations such as networks, platforms and other hybrids. Subsets of these agents contract with each other to further their network project and these contracts can create benefits for, or impose costs on, agents who are not contract parties. Contract law regulates third party claims against contract parties with the third party beneficiary doctrine, which directs courts to ask whether the contracting parties “intended” to benefit a particular third party. We show here what courts do with third party claims when network members fail to perform for third parties and what the law’s best responses to such breaches should be. Among our principal results are that courts honor third party claims when contract members likely can price them and when third parties incur substantial reliance losses, but protect third party interests less frequently than they should and refuse relief when contract members can identify the potential beneficiary class but not every agent who is likely to be in it.

Journal ArticleDOI
TL;DR: In this article, the authors studied a model of a repeated common agency where monetary transfers must be voluntary and showed that the optimal punishment strategy for a principal takes a two-phase scheme, similar to the punishment characterized by Goldlucke and Kranz (2012).
Abstract: Motivated by commitment problems of contracts in lobbying, this paper studies a model of a repeated common agency where monetary transfers must be voluntary. First, we show that the optimal punishment strategy for a principal takes a two-phase scheme, which is similar to the punishment characterized by Goldlucke and Kranz (2012). Second, we investigate whether an outcome of standard menu auctions with binding contracts can be supported by implicit contracts. We define the environment to be more preference-diverse if an efficient decision is less attractive to each principal. We show that the discount factor must be high to support the outcome of the standard menu auction if the environment is preference-diversified.

Journal Article
TL;DR: The principal-agent model of the United States Supreme Court and the lower federal courts has been widely accepted in the legal community as discussed by the authors, and it has been used to describe the federal judicial hierarchy in terms of a principalagent relationship.
Abstract: INTRODUCTION It is now commonplace for judicial politics scholars to describe the federal judicial hierarchy in terms of a principal-agent relationship.1 The basic outlines of this model are familiar: the United States Supreme Court is conceptualized as the "principal" and the lower federal courts as the "agents." Given resource constraints, the Supreme Court necessarily delegates some of the work of deciding cases to other courts, but as the principal, it sets the policy that the lower courts should implement.2 Lower court judges, however, have their own goals and preferences, which raises the risk that they will pursue their own ends,3 thus creating the classic dilemma of principal-agent relationships: how to ensure that agents act on the principal's behalf and not in their own self-interest. Like traditional attitudinal models, which hold that judges' preferences determine their voting behavior, principal-agent models assume that judges have policy goals that they seek to effectuate through their decisionmaking.4 Most commonly, these policy goals are framed in terms of outcomes. For example, conservative judges are assumed to prefer outcomes favoring the government in criminal cases, and liberal judges are assumed to prefer outcomes favoring civil rights plaintiffs. Although principal-agent theories recognize that institutional context affects judges' decisionmaking, many of these theories simply ignore the role of law. To the extent that they do account for law, they tend to understand it in instrumental terms-as a means of mediating the inevitable conflict between upper and lower courts over policy outcomes. Assuming that policy outcomes are the goal of judges' decisionmaking, scholars have thus characterized the law as merely a means for upper courts to communicate their policy preferences5 or as an instrument for exercising control over lower courts.6 The assumption that the lower federal courts are agents of the Supreme Court has become so widely accepted that the applicability of the model to the federal judicial hierarchy is rarely questioned. A few have raised doubts-for example, Judge Richard Posner notes that if federal appellate judges are agents, the identity of their principals is "a matter of some uncertainty." 7 Similarly, others have suggested that federal judges could appropriately be viewed as the agents of their appointing President, Congress, or the public.8 Nevertheless, many judicial politics scholars readily accept the characterization of the lower federal courts as agents of the Supreme Court. Because the federal judiciary is organized as a hierarchy, with some resemblance to other organizational forms that utilize monitoring and incentives to achieve the principal's goals, the principal-agent model is assumed to be an apt one. Upon closer examination, however, the principal-agent model does not map so neatly onto the structure of the judicial hierarchy. For example, the Supreme Court, to a far greater degree than most principals, is highly constrained in its ability to shape the incentives of district and circuit court judges. Moreover, there is no direct contractual relationship between Supreme Court Justices and lower federal court judges, making uncertain the basis for any duty on the part of lower courts to act in the interests of the Supreme Court. The lack of an exact fit should not be a surprise given that the concept of agency was developed by the common law to regulate representative relationships and later applied by economists and political scientists to describe institutions such as the private firm or the government agency-all contexts quite different from the judicial hierarchy. The lack of an exact fit alone does not mean the model cannot be useful, as existing theoretical constructs may offer useful insights when applied in new contexts. Models necessarily simplify a complex reality, however, and in doing so, they highlight certain features of the phenomenon under study while eliding others. …