- Research Handbooks in Law and Economics series
Edited by Claire A. Hill and Brett H. McDonnell
Chapter 14: Transaction Cost Engineers, Loophole Engineers or Gatekeepers: The Role of Business Lawyers After the Financial Meltdown
14. Transaction cost engineers, loophole engineers or gatekeepers: The role of business lawyers after the financial meltdown Richard W. Painter 1. INTRODUCTION Modern commentators have advanced three competing views of transactional lawyers: the ‘transaction cost engineer’ model championed by some law and economics commentators in the 1980s and 1990s, the notion that lawyers are ‘loophole engineers’ in keeping with the longstanding belief that lawyers exploit loopholes in the law for the benefit of clients, and the more paternalistic view that lawyers, along with other professionals such as accountants and investment bankers, are ‘gatekeepers’ who lend their credibility to clients while at the same time protecting capital markets and broader societal interests from client wrongdoing. What do lawyers actually do? As discussed in more detail below, the answer is that lawyers do all three. The three roles are also linked, sometimes reinforcing each other and sometimes undermining each other. The first view, the ‘transaction cost engineer’ model, centers on lawyers’ role in allocating economic risk in business transactions. Most ‘transaction cost’ savings involve shifting transaction risks from one person to another, a shift that usually adds value when risk is transferred to a party better able to understand the risk and to deal with it through insurance, diversification or a similar strategy. Academic literature promoting the transaction cost engineer model uses relatively simple examples of two or three party transactions – often in the mergers and acquisitions context – where lawyers add value by drafting contracts that overcome information asymmetry or some other...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.