every legal system must allocate the right to deal with future contingencies that were unforeseen when the law was announced. The reason is that law is intrinsically incomplete, meaning that it is impossible to design a law that would specify all future contingencies. and thus could act as an effective deterrent device When law is incomplete, the effectiveness of law and law enforcement is contingent on how a legal system deals with the right to determine the content and meaning of law when future contingencies arise- how it allocates lmlep to deal with future scenarios. A legal system may allocate these powers to courts or to regulators, or a combination of the two. It may also decide that private parties should resolve these issues by denying (easy) access to the formal legal system. In our other work, we identify three factors that determine the optimal allocation of LMLEP: the degree of incompleteness of the law, the ability to standardize actions that may result in harm ex ante, and the level of expected harm(Pistor and Xu 2002a; Pistor and Xu 2002b). Applying this framework to the problem of fiduciary duty, we argue that courts are the optimal holders of LMLEP for this area of the law. Law is highly incomplete, but actions cannot be easily standardized, thus making it infeasible to allocate LMLEP to regulators Moreover, because the level of expected harm is relatively contained, reactive law enforcement is sufficient for remedying harmful actions The effectiveness of the courts'residual lawmaking powers depends on the willingness of victims to bring cases to court, which in turn depends on the actual or perceived quality of the courts. If courts are weak, they may not be effective residual lawmakers and law enforcers, even if they are vested with extensive residual lawmaking powers. Courts in transition economies are widely perceived to be weak, played a much more active role. We suggest that this is related to procedural rules that make it easier for shareholders in closed corporations to bring judicial action than in publicly held ones6 every legal system must allocate the right to deal with future contingencies that were unforeseen when the law was announced. The reason is that law is intrinsically incomplete, meaning that it is impossible to design a law that would specify all future contingencies, and thus could act as an effective deterrent device.4 When law is incomplete, the effectiveness of law and law enforcement is contingent on how a legal system deals with the right to determine the content and meaning of law when future contingencies arise – how it allocates LMLEP to deal with future scenarios. A legal system may allocate these powers to courts or to regulators, or a combination of the two. It may also decide that private parties should resolve these issues by denying (easy) access to the formal legal system. In our other work, we identify three factors that determine the optimal allocation of LMLEP: the degree of incompleteness of the law, the ability to standardize actions that may result in harm ex ante, and the level of expected harm (Pistor and Xu 2002a; Pistor and Xu 2002b). Applying this framework to the problem of fiduciary duty, we argue that courts are the optimal holders of LMLEP for this area of the law. Law is highly incomplete, but actions cannot be easily standardized, thus making it infeasible to allocate LMLEP to regulators. Moreover, because the level of expected harm is relatively contained, reactive law enforcement is sufficient for remedying harmful actions. The effectiveness of the courts’ residual lawmaking powers depends on the willingness of victims to bring cases to court, which in turn depends on the actual or perceived quality of the courts. If courts are weak, they may not be effective residual lawmakers and law enforcers, even if they are vested with extensive residual lawmaking powers. Courts in transition economies are widely perceived to be weak, played a much more active role. We suggest that this is related to procedural rules that make it easier for shareholders in closed corporations to bring judicial action than in publicly held ones