Motivation, Information, Negotiation: Why Fiduciary Accountability Cannot Be Negotiable

Forthcoming in: D. Gordon Smith & Andrew S. Gold, eds., Research Handbook on Fiduciary Law (Edward Elgar, 2016)

European Corporate Governance Institute (ECGI) - Law Working Paper No. 349/2017

38 Pages Posted: 22 Jul 2016 Last revised: 7 Mar 2017

See all articles by Amir N. Licht

Amir N. Licht

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law; European Corporate Governance Institute (ECGI)

Date Written: June 28, 2016

Abstract

In the debate over contractual freedom or enabling-versus-mandatory rules in fiduciary law, those who do not adhere to an unbridled contractatian approach tend to justify fiduciary law’s strict posture by appealing to transaction cost reasoning. In this view, fiduciary law more efficiently sets rules that the parties would adopt or, also efficiently, sets penalty default rules that they would not adopt. Drawing on new institutional economics and information economics, this paper advances another theory on the appropriate scope of contractibility with regard to fiduciary loyalty. The present account highlights information asymmetries that are more tenacious than those stemming from information production costs - to wit, asymmetries due to unobservable and unverifiable information. These asymmetries provide a compelling justification for a strict, full-disclosure-based accountability regime. A similar analysis vindicates a rather similar legal policy in traditional insurance law, in which insurance relations are based on utmost good faith and impose a duty of full disclosure on the insured.

Keywords: fiduciary, loyalty, full disclosure, accountability, irreducible core, contractual freedom, insurance, information asymmetry

JEL Classification: D82, G30, G38, K10, K22, M41, M42

Suggested Citation

Licht, Amir N., Motivation, Information, Negotiation: Why Fiduciary Accountability Cannot Be Negotiable (June 28, 2016). Forthcoming in: D. Gordon Smith & Andrew S. Gold, eds., Research Handbook on Fiduciary Law (Edward Elgar, 2016); European Corporate Governance Institute (ECGI) - Law Working Paper No. 349/2017. Available at SSRN: https://ssrn.com/abstract=2811237 or http://dx.doi.org/10.2139/ssrn.2811237

Amir N. Licht (Contact Author)

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-952-7332 (Phone)
952-9-9513323 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
952-9-9513323 (Fax)

HOME PAGE: http:/www.ecgi.org

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