Monitoring as Fact and Norm

Contents

Two disciplines look into the same boardroom and see different things. The economist sees a monitoring mechanism: an agent whose presence reduces information asymmetry and adjusts the incentive structure between the parties. The lawyer sees a fiduciary — bound by duties of care and loyalty, constrained by conflict-of-interest rules she cannot contract out of, and personally liable for breach. The economist asks whether the monitoring is cost-effective. The lawyer asks whether the conduct meets the standard. They ask different questions about the same person, and it is in the space between those questions that this text moves.

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The difference is not merely terminological. Economic contract theory takes facts as given — effort levels, signals, outcomes — and designs the optimal contract on that basis. Scandinavian functionalism refuses that premise. A concept such as "sufficient care" has no fixed content in the abstract; it is constituted by the relationship in which it is applied. Facts do not precede norms — they are partly shaped by them.

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I use that tension as a lens. The text isolates four points at which the model's facts and the law's norms drift apart: when binary effort is to be translated into an open standard of care, when the economically most informative signal is the legally least usable, when the loyalty of the party-appointed director is divided, and when an agreed consequence is to be triggered but the threshold is a matter of interpretation. I then reverse the perspective and ask how a transactional lawyer can actually draft away the frictions — penalty clauses, key-person clauses, milestone structures, expert determination — and why none of them closes the gap entirely.

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It is a text for anyone who wants to see where the explanatory power of law and economics ends and the normative work of law begins. The conclusion is not that one discipline defeats the other, but that the lawyer who masters both can see something that neither sees alone: exactly where the calibration succeeds and where it fails.

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