It takes less than twenty-four hours to assemble a car. We all know about automobile assembly lines, so this fact comes as no surprise. Why then are we aghast to hear that a complex contract can be produced in “three and a half minutes?”
I submit that the reason is because we do not equate law firms with factories, lawyers with assembly-line workers, and contracts with homogeneous goods that are subject to mass production. Legal scholars and legal educators instead exclusively view contracts as a welfare maximizing (or optimal risk-allocating) device for two or more parties. Because we cling to this principal-driven paradigm, we think of lawyers only as the proverbial “transaction cost engineers,” the loyal agents of parties to a transaction. And whenever we observe contracts that appear to be suboptimal, we blame agency costs.
It is time to abandon this paradigm, and Mitu Gulati and Robert E. Scott’s delightful uncovering of the machinations and self-delusions in the sovereign bond legal market offers a biting illustration of how urgently we need to do so. Yet the “new” paradigm we need just might be the very paradigm that scholars of innovation and organization have long used to understand other products and industries. Gulati and Scott’s reports from the front line suggest not only that much of how we understand lawyers and contracts is wrong; they also suggest that much of how we understand economic organizations is right.