The Dynamics of Contract Evolution
Stephen J. Choi
New York University School of Law
G. Mitu Gulati
Duke University - School of Law
Eric A. Posner
University of Chicago - Law School
June 23, 2012
University of Chicago Institute for Law & Economics Olin Research Paper No. 605
NYU Law and Economics Research Paper No. 12-16
Contract scholarship has given little attention to the production process for contracts. The usual assumption is that the parties will construct the contract ex nihilo, choosing all the terms so that they will maximize the surplus from the contract. In fact, parties draft most contracts by slightly modifying the terms of contracts that they have used in the past, or that other parties have used in related transactions. A small literature on boilerplate recognizes this phenomenon, but little empirical work examines the process. This Article provides an empirical analysis by drawing on a data set of sovereign bonds. We show that exogenous factors are key determinants in the evolution of these contracts. We find an evolutionary pattern that roughly separates into three stages. Stage one where a particular standard form dominates; stage two where there are external shocks and marginal players experiment with deviations from the standard form; and stage three where a new standard emerges. The pattern confirms roughly to the S curve commonly described in the product innovation literature. We also find that more marginal law firms are likely to be leaders in innovation at early stages of the innovation cycle but that dominant law firms are the leaders at later stages.
Number of Pages in PDF File: 44working papers series
Date posted: June 27, 2012 ; Last revised: September 21, 2012
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