With proponents of deregulation ascendant, both domestically and around the world, private regulation appears to be an attractive solution to a seemingly intractable problem-assuming it is or can be effective. This Article adds an important corrective to standard accounts of private legal regulation and its effectiveness. Existing scholarship generally looks to the formal contract terms as the key to understanding private regulation and to evaluating its impact. This practice needs to be

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... ht. The relationship between contracting parties, as well as the regulatory authority that one party exerts over the other, can be quite different than the relationship described by the formal contract terms. This Article illustrates the problem with the scholarly assumption that formal contract language reliably describes the private regulatory relationships they establish. It does so through an in-depth analysis of a form of private contracting with great regulatory potential: the loan guarantees and associated political risk insurance policies underwritten by the World Bank. Such policies are purchased by corporations to mitigate the risks associated with doing business in under-regulated jurisdictions. Because, on their face, the terms of these policies require socially responsible corporate behavior, they appear to be a promising form of private regulation, succeeding in imposing significant obligations on corporations that traditional public regulation has failed to mandate. But these formal terms reveal little about the true nature of the private regulatory relationships they create. Even though the policy terms themselves are unlikely ever to be