The Economic Structure of Fiduciary Law

Robert H Sitkoff

doi:10.2139/ssrn.1782999

Abstract

This essay revisits the economic theory of fiduciary law. Nearly two decades have passed since the publication of the seminal economic analyses of fiduciary law by Cooter and Freedman (1991), and by Easterbrook and Fischel (1993), which together have come to underpin the prevailing economic, contractarian model of fiduciary law. The economic theory of agency that motivates those papers has come to permeate the literature on law and legal institutions generally. The law-and-economics movement has matured further, developing new tools and refining its understanding of previously applied concepts. The purpose of this essay is to restate the economic theory of fiduciary law in an updated and accessible synthesis.

Highlights

This Symposium on Fiduciary Law in the Twenty-First Century provides an opportune moment to revisit the economic theory of fiduciary law
The law-and-economics movement has matured further, developing new tools and refining its understanding of previously applied concepts. The purpose of this Essay is to restate the economic theory of fiduciary law in an updated and accessible synthesis
Fiduciary duties yield to the contrary agreement of the parties. This principle follows naturally from the nature of fiduciary governance as a system of deterrence meant to minimize agency costs by allowing the court to complete the contract after the fact

Summary

INTRODUCTION

This Symposium on Fiduciary Law in the Twenty-First Century provides an opportune moment to revisit the economic theory of fiduciary law. Two decades have passed since the publication of the seminal economic analyses of fiduciary law by Cooter and Freedman (1991), and by Easterbrook and Fischel (1993), which together have come to underpin the prevailing economic, contractarian model of fiduciary law.[1] The economic theory of agency that. BOSTON UNIVERSITY LAW REVIEW [Vol 91: 1039 motivates those papers has come to permeate the literature on law and legal institutions generally.[2] The law-and-economics movement has matured further, developing new tools and refining its understanding of previously applied concepts The purpose of this Essay is to restate the economic theory of fiduciary law in an updated and accessible synthesis

THE AGENCY PROBLEM

THE DISEMPOWERMENT STRATEGY

THE FIDUCIARY GOVERNANCE STRATEGY

MANDATORY AND DEFAULT RULES

COMPENSATION AND DISGORGEMENT

CONCLUSION