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The Market for Corporate LawOren Bar-GillNew York University School of Law Michal BarzuzaUniversity of Virginia School of Law Lucian A. BebchukHarvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI) Journal of Institutional and Theoretical Economics, Vol. 162, pp. 134-172, 2006 Harvard Law and Economics Discussion Paper No. 377 Abstract: This paper develops a model of the competition among states in providing corporate law rules. The analysis provides a full characterization of the equilibrium in this market. Competition among states is shown to produce optimal rules with respect to issues that do not have a substantial effect on managers' private benefits but not with respect to issues (such as takeover regulation) that substantially affect these private benefits. We analyze why a dominant state such as Delaware can emerge, the prices that the dominant state will set and the profits it will make. The results of the model are consistent with, and can explain, existing empirical evidence. Finally, the analysis highlights the importance of the rules governing reincorporation and the potential benefits of giving shareholders the power to make reincorporation decisions.
Number of Pages in PDF File: 44 Keywords: corporate law, managers, shareholders, regulatory competition, Delaware, private benefits of control, network externalities JEL Classification: G30, G38, H70, K22 Accepted Paper SeriesDate posted: June 28, 2001 ; Last revised: August 17, 2009Suggested CitationContact Information
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