Painter, Richard W. --- "Transaction Cost Engineers, Loophole Engineers or Gatekeepers: The Role of Business Lawyers After the Financial Meltdown" [2012] ELECD 469; in Hill, A. Claire; McDonnell, H. Brett (eds), "Research Handbook on the Economics of Corporate Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Corporate Law

Editor(s): Hill, A. Claire; McDonnell, H. Brett

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449589

Section: Chapter 14

Section Title: Transaction Cost Engineers, Loophole Engineers or Gatekeepers: The Role of Business Lawyers After the Financial Meltdown

Author(s): Painter, Richard W.

Number of pages: 18

Extract:

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 allocat-
ing 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 trans-
ferred to a party better able to understand the risk and to deal with it through insurance, diver-
sification 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 merg-
ers and acquisitions context ­ where lawyers add value by drafting contracts that overcome
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