Meinhard v. Salmon and the Economics of Honor

Abstract:     
The classic corporate law case Meinhard v. Salmon is a gem of rhetoric and morality. This article argues that under its polished surface lies one more Cardozo opinion with superb economic ramifications. The broad fiduciary obligations that Cardozo champions have numerous benefits: (i) They allow the financing of projects that create primarily remote value, (ii) they mitigate managerial risk-aversion, (iii) they further the social desirability of financing decisions, and (iv) they induce desirable managerial incentives. Meinhard is a crucial step in the transition to the modern form of impersonal managerial capitalism. Contains a formal appendix and pictures of the site before and after the project involved in the litigation.

Number of Pages in PDF File: 27

working papers series