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The Development of Securities Law in the United States

Paul G. Mahoney

University of Virginia School of Law

Given the existence of contract, property, fraud, and company law, what is the purpose of securities laws? Broadly speaking, they can serve either of two functions, or some mix of both. The first is to facilitate contracting among entrepreneurs, managers, shareholders, and financial intermediaries by providing a standardized set of rights and obligations (La Porta et al. 2005). Such laws are motivated by the desire to reduce transaction costs where contracting parties are widely dispersed and both writing complete contracts ex ante and renegotiating ex post are difficult. A second possible function is to restrict contracting by limiting the set of legally available terms. Such laws reflect the view that securities markets are beset by market failures stemming from externalities or investor irrationality (Coffee 1984; Fox 1999; Langevoort 2002). For the sake of simplicity, we can call the first a “contracting” paradigm and the second a “regulatory” paradigm.

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Date posted: April 29, 2009  

Suggested Citation

Mahoney, Paul G., The Development of Securities Law in the United States. Available at SSRN: http://ssrn.com/abstract=1394636 or http://dx.doi.org/10.1111/j.1475-679X.2009.00326.x

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Paul G. Mahoney (Contact Author)
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States
434-924-7343 (Phone)
434-924-7536 (Fax)

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