Trust v. Law (In a Box): Do Organizational Forms Really Make a Difference?

Abstract

In this contribution to the University of Illinois College of Law’s 2013 Larry Ribstein Memorial Symposium, I assess Professor Ribstein’s approach to both to trust and the “uncorporation.” My thesis is that his disciplinary commitment to a transaction cost economics model resulted in an overstatement of the extent to which business association forms matter in the real world. In contrast to Professor Ribstein’s view that mandatory law (which includes corporate law) “crowds out” trust (implicitly making uncorporations more amenable to trust), I see the orderliness of modern and abstract business structures (of any kind) as distinct from, yet operating at the same time and in the same space as, the usual gamut, for better or worse, of human emotions. Even if, as a matter of economic theory, uncorporations do a better job of corporations in permitting owners to control manager agency costs, the theory leaves out (for otherwise good reasons inherent in doing any kind of rigorous science) virtues like trust and vices like greed, fear, panic, all of which seem just as likely to operate in the uncorporate as the corporate setting.

Keywords: uncorporations, corporations, LLCs, limited partnerships, Ribstein, trust, Williamson, transaction cost economics

JEL Classification: B41, D60, K12, K22