September 2006, Volume 92, Issue 5
Return on Political Investment: The Puzzle of Ex Ante Investment in Articles 3 and 4 of the U.C.C.
by Christopher Termini
92 Va. L. Rev. 1023 (2006)
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When, why, and how does a firm decide to invest its resources in political capital? What factors inform the firm’s decision to lobby political bodies? How important is the resulting durability of law in making this calculus? Although these questions have been largely unanswered in the legal literature, they are fundamental to a complete understanding of public choice theory. Using Articles 3 and 4 of the Uniform Commercial Code as a framework for examining these questions, this Note identifies four threshold inquiries each firm must answer before engaging in political investment. It then develops those factors that a firm may consider in estimating its return on political investment (ROPI). A puzzle emerges, however, when one considers the default nature of the U.C.C. Economic theory and the right to contract suggest that the ex post distribution of such terms will achieve general equilibrium regardless of their ex ante value. Without ex post legal durability in the form of mandatory rules, it is difficult to imagine just how commercial banks are capable of harnessing long-term permanent returns from their political investment in the U.C.C. While the current legal literature simply assumes that banking interests can harness a non-negative return on political investment, this Note relies upon behavioral economics and the notion of bounded rationality to conclude that private banking interests are likely to capture a positive ROPI, even where default rules with seemingly little durability govern their contracts. In arriving at this conclusion, it first identifies the political investment threshold inquiries a firm must answer prior to contributing capital to a political investment, as well as the substantive returns that firms are likely to realize as a result.
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