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SSRN Electronic Journal
Article . 2019 . Peer-reviewed
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Stickiness and Incomplete Contracts

Authors: Nyarko, Julian;

Stickiness and Incomplete Contracts

Abstract

Both economic and legal theory assumes that sophisticated parties routinely write agreements that maximize their joint surplus. But more recent studies analyzing covenants in corporate and government bond agreements have suggested that some contract provisions are highly path dependent and “sticky,” with future covenants only rarely improving upon previous ones. This Article demonstrates that the stickiness hypothesis explains the striking lack of choice-of-forum provisions in commercial contracts, which are absent in the majority of half a million material agreements reported to the SEC. When drafting these contracts, external counsel relies heavily on templates and whether or not a contract includes a forum selection clause is almost exclusively driven by the template that is used to supply the first draft. There is no evidence to suggest that counsel negotiates over the inclusion of choice-of-forum provisions, nor that law firm templates are revised in response to changes in the costs and benefits of incomplete contracting. Together, the findings reveal a distinct apathy with respect to forum choice among transactional lawyers that perpetuates contractual gaps. The persistence of these gaps suggests that default rules can have significantly greater implications for the final allocation of the contractual surplus than is assumed under traditional theory.

Country
United States
Related Organizations
Keywords

Law

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Found an issue? Give us feedback
selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
2
Average
Average
Average
bronze