Oliver Hart and Bengt Holmstrom won the Nobel prize in economics last week for their research on contract theory.
In the late 1970’s, Holmstrom showed how the optimal contract carefully weighs risks against incentives.
In the 1980’s, Hart contributed to a branch of contract theory that dealt with the optimal allocation of control rights: which party to the contract should be entitled to make decisions in which circumstances. 1
Much of the energy of family lawyers is spent in getting the parties to an agreement, a contract. This is generally perceived to be in the best interests of the client.
Entering a contract that resolves a family law dispute is inexpensive and efficient when compared to the alternative of litigation. It is also the method of dispute resolution that gives the parties the most input.
I have tried many cases before judges. In none of those instances did the judge have superior knowledge than the parties regarding the issues before the court. The notion that a divorcing couple would prefer to give the decision making authority over the most important and intimate aspects of their lives to a stranger is nonsensical.
Then, many events that occur in a family law context are nonsensical. Some folks can’t get to a place where common sense prevails. These people live lives that seem like a surrealistic reality television.
These make for “interesting” cases–and you never want to be a client in an interesting case. It will cost you a lot in terms of emotional turbulence and fees spent on lawyers and experts.
Reaching an agreement is not an easy task. To get to closure, each party must have incentive to do so. These incentives include a consideration of how decisions involving children and property are to be made and which party makes the decision. Proficient mediators and collaborative lawyers spend significant time evaluating each party’s incentives. The allocation of control rights is observed as an important aspect of divorce resolution.
Contracts are involved in many aspects of post modern life. These aspects involve the resolution of family law disputes.
by Patrick Gaffney
1 “Contract theory earns pair Nobel Economics Prize.” Jamaica Observer. October 12, 2016.
