Information Exchange in Social Networks: Evidence from Moslem Nonprofits

Abstract : Social network theory has been used to formalize social relationships and (using what is called “graph theory") to chart connections between actors and institutions. We use these techniques to map relations among educational, political, religious, and charitable institutions in the Muslim community in greater Raleigh. We then introduce an intervention—a series of community-wide meetings that facilitate new connections between institutions that previously were not in communication—and assess both the durability of those new relationships and the broader impact on the network of institutional relationships across the community.

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Faux Contracts

Abstract : In deals of many varieties, parties enter into “faux contracts”—documents that look like contracts, but that lack the legal bite of formal legal contracts. Parties use faux contracts to pair formal contracting with informal (or non-existent) enforcement, thereby adding value in contexts as wide-ranging as sexual abstinence pledges and mergers and acquisitions. Parties use faux contracts in a variety of contexts. Examples include surrogacy contracts in states where they are outlawed, employment non-competition provisions where they are unenforceable, and non-binding term sheets in mergers and acquisitions deals. Use of faux contracts is most puzzling when parties are sophisticated—that is, when parties have the financial means and technical sophistication to enter into binding legal contracts, but choose to use faux contracts instead. This Article makes two contributions to the literature. First, it provides an account of when and why faux contracts flourish. Parties use faux contracts to decouple ex ante contracting from ex post enforcement, and to create a bespoke blend of formal contracting and informal or non-existent sanctions to meet their needs. Parties thereby harness the benefits of formal contracting without subjecting themselves to formal enforcement for breach. Second, this Article contributes to robust literatures in formal and relational contracting. It illuminates a new type of contract that occupies a space between formal and relational contracts. Formal contracts attach formal legal consequences for breach, while relational (or informal) contracts rely on informal sanctions—such as damage to reputation—to deter breach. Faux contracts break apart well-understood conventional pairings of contracting and enforcement, and reconstitute them to form innovative and fascinating contractual tools. Understanding faux contracting has significant implications for contract theory and practice, and has wide-ranging effects on parties, the economy, and society.

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Deal Networks

Abstract : A growing literature, focused particularly upon the sovereign debt market, has identified powerful network effects and agency problems that impede contractual innovation. However, similar conditions exist in the M&A market, where innovation proceeds at a regular, if incremental, cadence, presenting a challenging counterfactual to current theory. This Article argues that the key to understanding innovation in the M&A market is recognizing that some commercial contracts are produced by networks of designers, rather than single attorneys or even single law firms. Using a combination of hand-collected data of 15 years of investment bank and law firm deal relationships in the M&A market, supplemented with the results of dozens of interviews with M&A practitioners and jurists, the Article demonstrates that the collaborative approach to designing contracts in the M&A market ensures that diverse perspectives and expertise are brought to bear in the creation of a merger agreement, unsettles expectations, requires deal lawyers to interrogate their transactional designs, and spurs communication. Because the combination of law firms and attorneys changes from deal to deal, that diversity is continually replenished, preventing stasis from setting in. In short, the networked production of M&A agreements builds dynamism into the market. At the same time, as attorneys and their law firms participate in the deal network over time, they gain a common foundation of expertise, which allows members of the network to quickly assimilate new ideas and approaches when they encounter novelty in a new transactional situation. Thus, the deal network is simultaneously a source of change and continuity in the market. The paper then discusses implications of this study of the M&A market for broader contract law and policy, and argues that contextual contract interpretation may be a key ingredient in the efficient operation of a deal network such as the one found in M&A.

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Misconduct and Market Development

Abstract : This paper presents individual and country-level studies of reactions to misconduct. With access to complete data, I am able to measure reactions to misconduct and study how misconduct alters the composition of markets in a way that impedes improvements in governance. The individual-level analysis studies investor reactions to a stockbrokerage fraud in Kenya's Nairobi Securities Exchange. Using the NSE's electronic databases, I know the complete universe of investors at risk of victimization, those victimized in the fraud, and all trades made by all investors before and after the fraud. Results show that victimized investors who are co-ethnic with the perpetrator are paradoxically more likely to reinvest in the market than victims who belong to rival ethnic groups. A key implication of this result is that fraud alters the composition of the market by retaining more socially homogeneous population that is less likely to demand improvements in governance. I next extend this result to the country level, where I study changes in global capital flows resulting from state-sponsored violence. Using complete data on monthly bilateral financial transfers provided by SWIFT, I find that non-African countries with natural resource trade relationships with African countries react similarly to Kenya's co-ethnic investors. The resulting pattern is similar to before, where a violent African country's foreign financial ties become more concentrated but do not reduce in overall value following state-led violence.

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