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Firms and Fiduciaries

Paul B. Miller & Andrew S. Gold, eds., Contract, Status, and Fiduciary Law (Oxford: Oxford University Press, 2016), Forthcoming

BYU Law Research Paper No. 16-01

22 Pages Posted: 9 Feb 2016 Last revised: 15 Mar 2016

D. Gordon Smith

Brigham Young University - J. Reuben Clark Law School

Date Written: February 9, 2016

Abstract

Economists who study the theory of the firm strive to draw a line between firms and markets. This line corresponds to the line lawyers draw between fiduciary and nonfiduciary relationships. The Critical Resource Theory (“CRT”) of fiduciary relationships is motivated by the property-rights theory of the firm. CRT holds that the distinguishing feature of fiduciary relationships is that “a fiduciary exercises discretion with respect to a critical resource belonging to the beneficiary, whereas most contracting parties exercise discretion only with respect to their own performance under the contract.”

In this chapter, I refine the description of “resources” under CRT using the property-rights theory of the firm and the resource-based view of the firm and extend the analysis of CRT to two important implications flowing from the basic structural insight: (1) while some features of fiduciary relationships are traceable to the logic of contract and some features are traceable to the logic of property, fiduciary relationships are unique hybrid institutions; and (2) the distinctive duty of loyalty that is imposed on fiduciary relationships is designed to protect the beneficiary’s property-like interest in critical resources.

Keywords: Philosophy of Law, Legal Theory, Philosophy of Private Law, Private Law Theory, Fiduciary Law, Fiduciary Relationships, Fiduciary Duties, Fiduciary Remedies, Duty of Loyalty

JEL Classification: K00, K10, K11, K12, K13, K20, K22

Suggested Citation

Smith, D. Gordon, Firms and Fiduciaries (February 9, 2016). Paul B. Miller & Andrew S. Gold, eds., Contract, Status, and Fiduciary Law (Oxford: Oxford University Press, 2016), Forthcoming ; BYU Law Research Paper No. 16-01. Available at SSRN: https://ssrn.com/abstract=2729657

D. Gordon Smith (Contact Author)

Brigham Young University - J. Reuben Clark Law School ( email )

422 JRCB
Provo, UT 84602
United States
801.422.3233 (Phone)
801.422.0390 (Fax)

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