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Three and a Half Minutes

Three and a Half Minutes. Robert E. Scott & Mitu Gulati. Faithful Lawyer Nervous/ Lazy/Faithless Lawyers. LearningExternalities NetworkExternalities Negative Signal Loss Aversion Nervous Nellies Firm Routines. Theories of Contract Stickiness (How Academics Talk).

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Three and a Half Minutes

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  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?

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