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http://ssrn.com/abstract=570641
 
 

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On Public Versus Private Provision of Corporate Law


Gillian K. Hadfield


USC Law School and Department of Economics

Eric L. Talley


University of California, Berkeley - Boalt Hall School of Law

June 1, 2004

USC Law and Economics Research Paper No. 04-18
USC CLEO Research Paper No. C04-13

Abstract:     
Law in modern market societies serves both democratic and economic functions. In its economic function, law is a service, a means of enhancing the value of transactions and organizations. Yet modern market economies continue to rely on the state, rather than the market, to provide this service. This paper investigates whether private provision of law may be superior to public provision. We look in particular at corporate law, where there is a substantial literature exploring the efficiency implications of "regulatory competition" and compare this competition with market competition between private providers. Drawing from the well-known framework of spatial models of imperfect competition, we argue that while neither public nor private competition may lead to the optimal corporate law regimes, there are at least some reasons to believe that private provision may be preferable. Specifically, we present a model that demonstrates in which regulatory competition is likely to produce widespread emulation, and little innovation. Private competition, in contrast, is more likely to lead to greater "product" differentiation, which benefits heterogeneous consumers of corporate law services in the short term. Moreover, such differentiation also has long-term benefits, as providers are able to "learn" more about business organizations' demand-side characteristics, and thus tailor their services to business needs more effectively.

Number of Pages in PDF File: 28

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Date posted: August 24, 2004 ; Last revised: November 17, 2013

Suggested Citation

Hadfield, Gillian K. and Talley, Eric L., On Public Versus Private Provision of Corporate Law (June 1, 2004). USC Law and Economics Research Paper No. 04-18; USC CLEO Research Paper No. C04-13. Available at SSRN: http://ssrn.com/abstract=570641 or http://dx.doi.org/10.2139/ssrn.570641

Contact Information

Gillian K. Hadfield (Contact Author)
USC Law School and Department of Economics ( email )
699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-821-6793 (Phone)
213-740-5502 (Fax)

Eric L. Talley
University of California, Berkeley - Boalt Hall School of Law ( email )
215 Boalt Hall
Berkeley, CA 94720-7200
United States
(510) 642-7875 (Phone)
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