System and Evolution in Corporate Governance
University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law
Alvarez & Marcel Latin America
April 2, 2010
ECGI - Law Working Paper No. 150/2010
We explore the relevance of systems theory for an understanding of legal evolution, with specific reference to the law and practice of corporate governance. The legal system can be understood as a cognitive resource which, by stabilising normative expectations, reduces transaction costs and enhances contractual cooperation. However, the cognitive capacity of the legal system is not simply a function of its adaptability to external economic conditions. Because of the need to ensure legal continuity and certainty, there is a trade-off between innovation and stabilisation in the production of legal rules. Legal change is discontinuous, asynchronic, and imperfectly matched with developments in the economy. We discuss the relevance of this model for understanding and evaluating corporate governance default rules.
Number of Pages in PDF File: 27
Keywords: Corporate governance, legal evolution, systems theory, autopoeisis, memetics, default rules, fiduciary duties
JEL Classification: G38, K22
Date posted: April 7, 2010
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