Private Rules and Standards

Abstract

This Article presents a model of the drafting choice between rules and standards in private legal instruments. The traditional literature on rules and standards is centered on public legal directives such as statutes and regulations, where the analysis of rules and standards focuses on their effects on social welfare. Less attention is given to the private incentives of drafters, which is understandable given that legislatures and administrative agencies are supposed to be acting in the public interest.

In the context of private legal directives such as those in contracts or patents, the private incentives of drafters have a more obvious role. As the model will illustrate, whether a rule or standard will be written depends on a delicate balance between the self-serving incentives of private drafters and the anticipated resistance of courts. Private drafters benefit from rules that can be slanted in their own favor, but are constrained by the higher costs of rule drafting and the likelihood of judicial resistance to slanted rules. On the other side, courts prefer setting aside slanted rules in favor of standards that allow them greater discretion to reach the just outcome, but are constrained by the higher adjudication costs of standards, and therefore must tolerate and enforce some slanted rules. Understanding this balance provides insight into drafting choices and interpretative debates regarding contracts, patents, and other private legal instruments.

Keywords: rules, standards, rules v. standards, public law, private law, private legal directives, patents, contracts, wills, private drafters

JEL Classification: K1, K10, K12, K2, K20