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Mark Flood (Office of Financial Research (OFR), U.S. Treasury) and Oliver Goodenough (Vermont Law School and a visitor at both CodeX and OFR) will present their paper on the “Contract as Automaton: The Computational Representation of Financial Agreements.” Their research shows that the fundamental legal structure of a well written financial contract follows a state-transition logic that can be formalized mathematically as a finite-state machine (a deterministic finite automaton). The automaton defines the states that a financial relationship can be in, such as “default,” “delinquency,” “performing,” etc., and it defines an alphabet of events that can trigger state transitions, such as “payment arrives,” “due date passes,” etc. The core of a contract thus describes the rules according to which different sequences of event arrivals trigger particular sequences of state transitions in the relationship between the counterparties. By conceptualizing and representing the legal structure of a contract in this way, they expose it to a range of powerful tools and results from the theory of computation. These allow, for example, automated reasoning to determine whether a contract is internally coherent, and whether it is complete relative to a particular event alphabet. Importantly, the formalism of the automaton is not intended metaphorically, but rather as a practical tool for structuring and enhancing actual legal agreements; the talk will illustrate the process by representing a simple loan agreement as an automaton.
Lunch will be provided.
Office of Financial Research (OFR), U.S. Treasury
Mark D. Flood did his undergraduate work at Indiana University in Bloomington, where he majored in finance (B.S., 1982), and German and economics (B.A., 1983). In 1990, he earned his Ph.D. in finance from the Graduate School of Business at the University of North Carolina at Chapel Hill. He has taught finance and business at universities in the U.S. and Canada, and worked as a financial economist on issues of regulatory policy and risk management at the Federal Reserve Bank of St. Louis, the Office of Thrift Supervision, the Federal Housing Finance Board, and the Federal Housing Finance Agency. He was a founding member of the Committee to Establish a National Institute of Finance. He is currently a Research Principal in the Treasury’s Office of Financial Research. His research has appeared in a number of scholarly journals, including the Review of Financial Studies, the Annual Review of Financial Economics, Quantitative Finance, the Journal of International Money and Finance, the Federal Reserve Bank of St. Louis Review, and in the two-volume Handbook of Financial Data and Risk Information.
Director and Professor of Law, Vermont Law School
Visitor at both CodeX and OFR
Oliver Goodenough’s research, writing and teaching at the intersection of law, economics, finance, media, technology, neuroscience and behavioral biology make him an authority in legal innovation. He is currently a Professor of Law and the Director of the Center for Legal Innovation at Vermont Law School and a visitor at CodeX. He is also a Faculty Associate at Harvard’s Berkman Center for Internet & Society, a Research Fellow of the Gruter Institute for Law and Behavioral Research, an Adjunct Professor at Dartmouth’s Thayer School of Engineering, a visiting Researcher at the Office of Financial Research, and a participant in the University of Pavia’s initiative on legal innovation.