CIRJE-J-98. Kamiya, Takayasu and Yoshitsugu Kanemoto, "The Structure of Fiduciary Duties As Approached Through Law & Economics", October 2003.

We examine two issues on fiduciary duty. First, what is the essential structure of fiduciary duty? Second, does fiduciary duty have elements of a mandatory rule?

Concerning the first question, the formation of a fiduciary relationship involves the difficulty of writing a contract on the acts that the fiduciary has to do, and the outcomes of the acts. Especially, fiduciary duty is used when writing a contract on outcomes is so difficult that an outcome-based contract cannot attract an agent. We interpret fiduciary duty as an attempt at coping with this difficulty by (1) a defensive incentive structure that prohibits the misappropriation of the principal's 'asset' by the agent and (2) the court's ex-post supervision on verifiable acts of misappropriation.

For fiduciary duty to have elements of a mandatory rule, (1) the rule itself should be clear and specific and (2) the extent that the rule applies should be also clear. Furthermore, they must pass the cost-benefit test of Kanda and Fujita: "The value of benefits, which accrues to the society from setting a rule as a mandatory rule, should exceed the cost of sacrifice, which accrues to the society from compelling the parties to obey the arrangements of the mandatory rule." (Hideki Kanda and Tomotaka Fujita) (1998)