The Cult of Efficiency in Corporate Law
Grant M. Hayden
Hofstra University - Maurice A. Deane School of Law
Stephen E. Ellis
University of Oklahoma
December 8, 2010
Virginia Law & Business Review, Vol. 5, No. 2, Fall 2010
Hofstra Univ. Legal Studies Research Paper No. 10-44
This paper challenges a fundamental assumption of corporate law scholarship. Corporate law is heavily influenced by economics, and by normative economics in particular. Economic efficiency, for example, is seen as the primary goal of good corporate governance. But this dependence on standard notions of economic efficiency is unfortunate, as those notions are highly problematic. In economic theory, efficiency is spelled out in terms of individual preference satisfaction, which is an inadequate foundation for any sort of normative analysis. We argue that on any account of the good, people will sometimes prefer things that aren’t good for them on that account. Giving people what they want, then, isn’t necessarily an accomplishment, and thus the normative assessment of economic outcomes is much more complicated than economists recognize. This fact is something that should be reflected in corporate law scholarship, and would greatly expand the range of possible considerations when restructuring corporate law.
Number of Pages in PDF File: 28
Keywords: corporate law, corporate governance, law and economics, efficiency
JEL Classification: A11, A12, A13, D60, K00, K22
Date posted: December 10, 2010 ; Last revised: December 16, 2010
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