AuthorDemott, Deborah A.

TABLE OF CONTENTS INTRODUCTION 1139 I. CROWDING-OUT AND CROWDING-IN: BEHAVIORAL EVIDENCE AND THEORIES 1143 A. Intention, Motivation, and Crowding-Out Effects 1143 B. Crowding-In and Complementarity Effects 1146 C. Trust, Trustworthiness, and Trusting Behavior 1150 II. IMPLICATIONS FOR FIDUCIARY LAW 1153 A. The Distinctiveness of Fiduciary Relationships and Fiduciary Law 1154 B. Extralegal Sanctions 1160 C. The Motive, the Deed, and Acting "As-If" 1164 III. FIDUCIARY RELATIONSHIPS ON MULTIPLE DIMENSIONS 1169 A. Securities Broker-Dealers, Their Customers, and Investment Recommendations 1170 B. Philanthropic Crowdfunding, Campaign Organizers, and Their Donors 1173 C. The Family Trust and the Conflicted Trustee 1180 CONCLUSION 1184 INTRODUCTION

By imposing an obligation of loyalty, does fiduciary law undercut or "crowd out" the force of intrinsic motivation to act loyally? Alternatively, does fiduciary law reinforce or enhance intrinsic motivation, including a disposition to trust another person to act loyally? Are the relationships between the law and intrinsic motivation antagonistic, or complementary and mutually reinforcing? Looking to future developments in fiduciary law and theory, this Article explores these relationships. This inquiry implicates the power of extralegal norms and reputational concerns to reinforce loyalty and deter or sanction disloyal conduct.

Extensive behavioral research examines many dimensions of intrinsic motivation. Scholarship exploring the legal implications of intrinsic motivation addresses fiduciary law but mostly focuses on implications for contract, property, and tort law, as well as tax administration, and criminal law and its enforcement. The Article detangles distinct strands in prior scholarship and identifies the sharp limitations of "crowding-out" arguments as applied to fiduciary law. To test the implications, the Article introduces three examples from the fiduciary realm, chosen because they differ along multiple dimensions and illustrate how these issues might matter in concrete settings.

Scholars who premise critiques of legal and regulatory interventions on behavioral research often assume the superiority of intrinsic motivation over the duty to comply with legal mandates. They rely on experimental findings that a person who does what is right because it is right or otherwise intrinsically satisfying experiences a "warm glow" that is diminished or eliminated when obeying a legal mandate to do the same thing. (1) Another strand of scholarship emphasizes that complying with a legal mandate--which could originate from a legally enforceable contract between the parties--may yield fewer gains to reputation than when the same conduct is not legally compelled. (2) The implications of these accounts can be combined if it is intelligible to say that an actor can derive "warm-glow" satisfaction from an enhanced reputation in others' eyes or from the prospect of enhanced reputation. (3)

Relatedly, some scholarship premised on experimental findings associates legal mandates with decreased interpersonal trust and willingness to cooperate. (4) Separately, to the extent a legal mandate changes the reason for an action, it can change the meaning an actor attributes to the action over time, with consequences for the capacity to define oneself that could prove regrettable. (5) Finally, some accounts may verge on nostalgia for a prelapsarian imaginary in which interpersonal trust, nonlegal sanctions, and intrinsically motivated rightful behavior made legal rules and formal institutions for their enforcement either unnecessary or relatively unimportant. (6)

Experimental and behavioral research also supports counters to arguments that rely on "crowding-out" theories. For starters, research findings show that sometimes the law can "crowd in" intrinsic motivation--for example, by helping to inculcate loyalty to interests other than an actor's own, thus supplementing and not displacing intrinsic motivation. (7) Legal mandates can increase the willingness to trust others by undergirding the likelihood that actors who enlist others' trust will prove worthy of that trust. (8) Additionally, arguments that rely on the power of reputation and assume that actors are unwilling to jeopardize reputation are vulnerable to evidence that reputational sanctions vary in strength, depending on the stakes and the context. (9)

More generally, offsetting the lure of "warm-glow" satisfaction and the intrinsic satisfaction of interpersonal trust is a deeply felt distaste for feeling like a chump or a dupe once it is evident that others betrayed the trust reposed in them. (10) Separately, "warm-glow" accounts do not appear to offset the harm done by betrayal when it occurs. (11) Additionally, law can help allay concerns about the strength of others' intrinsic motivation in relationships in which the risk of betrayal is always at least a theoretical possibility. Law can stiffen the spine of those in positions of trust when tempted to act disloyally. (12) Triggered as it is by relationships that mostly fall within legally defined categories, fiduciary law serves a channeling function--facilitating reliance on actors whose conduct induces trusting conduct--by furnishing a signal that legally enforceable duties bind actors who occupy fiduciary roles. (13) For actors situated outside a channel of designation created and reinforced by fiduciary law and regulation, the absence of such a signal can be a salient note of caution to prospectively vulnerable parties. (14) The significance of signalling in particular contexts creates incentives for actors seeking to occupy fiduciary roles to do what is required to enter the channel. (15)

General scholarly inquiries into fiduciary law predominantly focus on accrediting the subject as a coherent field and not a piecemeal assortment of doctrinal detail. Looking to the future invites reflection on relationships between the formal domain of fiduciary law and other factors that shape conduct. These include intrinsic motivation as well as markets for professional services and forces such as the operation of reputation. The Article demonstrates that looking across domains, from the legal to the extralegal, casts in sharp relief the reasons why fiduciary law is distinctive. These stem from the distinctive qualities of the relationships to which fiduciary law applies, as well as the mandatory nature of the distinctively fiduciary duty of loyalty that backstops parties who rely on the trustworthiness of others. Moreover, fiduciary law can operate to reinforce loyal conduct motivated by nonlegal factors by crowding in loyalty, not crowding it out. Using concrete examples, the Article explores how factors beyond the law that shape conduct likely vary in significance along dimensions of variation among fiduciary relationships.

The Article opens by surveying relevant findings from behavioral research, beginning with studies that identify "crowding-out" effects when an externally prompted motivation--including compliance with a legal mandate or a legally enforceable contract--reduces or eliminates an actor's intrinsic motivation to perform the same act. Scholars using the same methodologies also document the presence of "crowding-in" effects, when the law or other exterior motivation complements and enhances intrinsic motivation. Behavioral scholarship also engages with trust as a distinct focal point for research, but how best to define trust remains a contested question. The Article next turns to implications for fiduciary law. Its distinctive features, which lend coherence at a general level to a subject characterized by disparities when viewed at a more granular level, are invulnerable to critique on crowding-out grounds, even taking into account a backdrop of extralegal sanctions, including reputational effects.

To explore further implications of crowding-out and crowding-in effects across a variety of relationships, the Article uses three concrete examples. These are broker-dealers who furnish investment advice to clients, in light of state-by-state variations in whether fiduciary duties apply; individuals who organize fund-raising campaigns with philanthropic objectives; and trustees of family trusts who act subject to a conflict to which the settlor consented in structuring the trust. These relationships differ along several dimensions, including the presence or absence of prior ties linking the parties that are consistent with the presence of strong pulls toward intrinsic motivation; the economic stakes of the relationship for its more vulnerable party; and the nature of the role assumed by the person in whom the vulnerable party must repose trust. Examining these examples confirms the significance of fiduciary law as a constraint on conduct, as well as its capacity to signal expectations to parties in fiduciary relationships, in which (one way or another) one party "has to" trust the other to act loyally and is thereby always subject to risks of betrayal.


    Unsurprisingly, research into motivation that underpins crowding-out and crowding-in assessments of legal doctrine and institutions has multiple components. This Part surveys behavioral research exploring relationships between intrinsic motivation and motivations stemming from extrinsic interventions, including the law, beginning with studies that find these extrinsic interventions have crowding-out effects. This Part also surveys studies that find that the law and other sources of external motivation can crowd in intrinsic motivation. Finally, the Part discusses scholarship contesting the assumption that intrinsic and extrinsic motivation are completely separable, not complementary. A distinct but related component of this body of scholarship focuses on trust--however defined--and how it may be undermined or reinforced, including through the design...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT