Abstract
In the stylized world of contract theory, contracting parties write optimal agreements that maximize their collective utility by balancing front-end and back-end costs and benefits. In the real world of business deals, however, drafters rarely even approximate this ideal of economic efficiency, let alone achieve it. Scholars have long recognized this gap between theory and practice, and the most common explanation is a classic principal–agent problem in which the lawyers who draft agreements do not act in the contracting parties’ best interests. Despite this explanation’s prevalence, most literature has simply noted this issue in passing as an obvious truth, and the few scholars who have explored it further have addressed only specific, isolated manifestations of it.
In contrast, this Article paints a comprehensive and cohesive picture of agency problems in contract design, making several novel contributions. First, it characterizes these problems by introducing a unified framework that facilitates holistic discourse rather than fragmented analyses. Through this framework, the Article explores these agency problems’ underlying causes, which span laws and regulations governing lawyers, legal education and training, transactional techniques, behavioral traits, reputational and relational dynamics, and compensation schemes. Unlike prior literature, this analysis extends beyond traditional drafting practices to new tools based on generative artificial intelligence. After identifying several sources of agency problems, this Article considers targeted solutions and advocates for those with the greatest potential for success, including educational initiatives that advance broader movements to reform the law school curriculum.
Recommended Citation
Naveen Thomas,
Agency Problems in Contract Design,
59 Loy. L.A. L. Rev. 77
().
Available at: https://digitalcommons.lmu.edu/llr/vol59/iss1/2
