Dynamic, Virtuous Fiduciary Regulation
Festschrift in Honor of Christian Kirchner, 2014, Forthcoming
19 Pages Posted: 4 Jun 2013
Date Written: 2013
This essay, a forthcoming book chapter, examines the recent flux in Delaware LLC fiduciary law (and lawmaking) through the perspectives of New Institutional Economics (NIE) and the virtue ethics tradition. Delaware’s recent unsettledness as to whether default duties apply to LLCs can be understood as an instance of dynamic regulation in a common law setting. Given bounded rationality and incomplete contracting, such “dynamic” regulation emphasizes experimentation, observation, adaptation, and rule revision as part of an ongoing process of regulation. Various institutions - such as legislators, judges, lawyers, private organizations, and social norms - serve as mechanisms through which key actors interact with and adapt to other actors as rules evolve, often incrementally over long periods, but occasionally with more evident and rapid bursts of change when existing rule-optimality is questioned. Dynamism is not at odds with the goal of determinacy; it is the process by which, over time, greater determinacy is achieved under conditions of change. Joined with the virtue ethics tradition’s emphasis on the development and exercise of core virtues (such as loyalty and fairness) in human relationships, dynamic regulation provides a theoretical account of Delaware’s recent experience with LLC fiduciary duties.
Keywords: dynamic regulation, fiduciary, new institutional economics, virtue ethics, limited liability company
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