The Cult of Efficiency in Corporate Law

28 Pages Posted: 10 Dec 2010 Last revised: 16 Dec 2010

See all articles by Grant M. Hayden

Grant M. Hayden

Southern Methodist University - Dedman School of Law

Stephen E. Ellis

University of Oklahoma

Date Written: December 8, 2010


This paper challenges a fundamental assumption of corporate law scholarship. Corporate law is heavily influenced by economics, and by normative economics in particular. Economic efficiency, for example, is seen as the primary goal of good corporate governance. But this dependence on standard notions of economic efficiency is unfortunate, as those notions are highly problematic. In economic theory, efficiency is spelled out in terms of individual preference satisfaction, which is an inadequate foundation for any sort of normative analysis. We argue that on any account of the good, people will sometimes prefer things that aren’t good for them on that account. Giving people what they want, then, isn’t necessarily an accomplishment, and thus the normative assessment of economic outcomes is much more complicated than economists recognize. This fact is something that should be reflected in corporate law scholarship, and would greatly expand the range of possible considerations when restructuring corporate law.

Keywords: corporate law, corporate governance, law and economics, efficiency

JEL Classification: A11, A12, A13, D60, K00, K22

Suggested Citation

Hayden, Grant M. and Ellis, Stephen E., The Cult of Efficiency in Corporate Law (December 8, 2010). Virginia Law & Business Review, Vol. 5, No. 2, Fall 2010 , Hofstra Univ. Legal Studies Research Paper No. 10-44, Available at SSRN:

Grant M. Hayden (Contact Author)

Southern Methodist University - Dedman School of Law ( email )

P.O. Box 750116
Dallas, TX 75275
United States

Stephen E. Ellis

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-360-6433 (Phone)

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