The conventional view is that standardized boilerplate terms represent an optimal contractual solution to the contracting problems facing parties in large markets. As Smith and Warner explained, "harmful heuristics, like harmful mutations, will die out." But an examination of a sample of current sovereign bond contracts reveals numerous instances of harmful landmines--vague and apparently purposeful changes to standard language that increases a creditor's nonpayment risk, coupled with blatant errors in expression and drafting and a continuing use of inapt terms that were historically imported from corporate transactions. Moreover, these landmines differ from each other in important respects: purposeful changes to the standard form reflect careful lawyering on behalf of sovereign clients, while errors that only benefit subsequent activists reflect haste in adapting precedents to new transactions. Using both quantitative data and interviews with market participants, we find that the conventional view fails to recognize the unique role that lawyers play in the drafting of standard form contracts. Systematic asymmetries in the market for the lawyers who negotiate and draft these contracts appear to explain why real world contracts depart from the efficient contract paradigm.

Robert Scott, Stephen Choi & G. Mitu Gulati, Contractual Landmines, Yale Journal on Regulation (2024).