Can Culture Constrain the Economic Model of Corporate Law?

Abstract

The economic model of corporate law could, with a few simple moves, be seen as potentially having cultural limits. Or, better put, the economic model works well in the United States because not much impedes Coasean-style re-bargaining among the corporate players. Begin with the economic model without limit: Takeovers persisted in the face of anti-takeover law, one can argue, due to executive compensation that paid senior managers to stop strongly opposing takeovers. But executive compensation cannot be varied everywhere as easily as it can be raised in the Untied States. Where it cannot be easily varied, this kind of a Coasean re-bargain is harder than it is here. More generally, culture a) could affect the quality of institutional substitutes, b) could degrade some organizational-types but not others, and c) could reconfigure even a persisting economic model by choosing among equally effective arrangements. Other basic structures of corporate law - indeed, one could imagine even the public firm with diffuse ownership itself - could be subject to the degree to which local norms (and culture) allow parties to vary their deals smoothly. When norms make key variations costly, boundaries to the economic model of a type rarely present in the American corporation appear. I sketch out, with the help of the Symposium's papers, where those boundaries can be glimpsed.

Keywords: corporations, corporate law, takeovers

JEL Classification: G32, G34, K22, L21, L22, L25