Gulati scott 3 1 2 minutes sticky contracts
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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

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Gulati scott 3 1 2 minutes sticky contracts

Gulati & Scott, 3 1/2 Minutes: Sticky Contracts

Karl Okamoto

Earle Mack School of Law

Drexel University


The abc model

The “ABC” Model*

A clause will change if

A < B – C

*Pat. Pending


Where

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.


Gulati scott 3 1 2 minutes sticky contracts

  • 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?)


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