Private Law Theory

ABSTRACT
Fiduciary duties are supposed to bridge the gap between public and private law. Private actors who engage in ‘public or quasi-public’ functions (eg, corporate directors and pension administrators) are often subject to fiduciary constraints to protect vulnerable parties who lack power in relationships with these actors. Recently, scholars have argued that both courts and legislatures have inappropriately expanded the use of fiduciary duties to purely private relationships. But what if the problem is not the expansion of fiduciary duties to private relationships, but the increasing delegation of public powers to private actors whose behavior cannot be adequately constrained by fiduciary law?

My article uses game theory to show that fiduciary duties are inadequate to constrain the behavior of even traditional fiduciaries. Game theory has been underutilized in legal scholarship as a tool for considering how people are likely to behave and what impact legal constraints and incentives have on their decisions. Simple games can show why fiduciaries often do not behave in socially desirable ways. While fiduciary duties solve for various problems (eg, the difficulty of regulating complex relationships with significant discretion and information asymmetries), they are fundamentally insufficient to alter the self-interested behavior of bad actors and have been less beneficial for society than is often argued.

Yet many scholars continue to argue for the expansion of fiduciary law in areas where the public-private divide has been erased because of the outsourcing of traditional state functions such as social welfare programs. I argue that fiduciary duties do not sufficiently constrain behavior and their use should be contracting instead of expanding. Even if it is difficult or impractical for government actors to implement the targeted regulation necessary to constrain self-interested behavior in every relationship currently governed by fiduciary law, it remains essential to acknowledge the failures of the current legal framework because it is the only way to shift the focus towards different solutions.

Roth, Lauren, The Fiduciary Game (August 1, 2024).