Disintegrating the Regulation of the Business Corporation as a Nexus of Contracts: Regulatory Competition vs. Unification of Law

Abstract

We apply the paradigm of the firm as a nexus of contracts to the debate on regulatory competition vs. unification of law as an alternative way of regulating the business corporation. This approach views the business corporation as a set of coordinated contracts among different parties. Agency problems and related agency costs are the result of this interaction. The economic analysis of corporate law, securities regulation and bankruptcy law identifies law as a means to minimize such agency costs. In this paper we develop a model where companies are heterogeneous in their preferences about the legal regulation of contractual relationships. We then compare a regime of regulatory competition to a regime of single supply of regulation and we analyse their relatives costs and benefits.

Keywords: Corporate Governance, Regulatory Competition, Forum Shopping, Unification of Law, Theory of the Firm, Agency Costs, Corporate Law, Securities

JEL Classification: K20, K22, L51