The Market for Corporate Law

Journal of Institutional and Theoretical Economics, Vol. 162, pp. 134-172, 2006

Harvard Law and Economics Discussion Paper No. 377

44 Pages Posted: 28 Jun 2001 Last revised: 17 Aug 2009

Oren Bar-Gill

Harvard Law School

Michal Barzuza

University of Virginia School of Law

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

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Abstract

This paper develops a model of the competition among states in providing corporate law rules. The analysis provides a full characterization of the equilibrium in this market. Competition among states is shown to produce optimal rules with respect to issues that do not have a substantial effect on managers' private benefits but not with respect to issues (such as takeover regulation) that substantially affect these private benefits. We analyze why a dominant state such as Delaware can emerge, the prices that the dominant state will set and the profits it will make. The results of the model are consistent with, and can explain, existing empirical evidence. Finally, the analysis highlights the importance of the rules governing reincorporation and the potential benefits of giving shareholders the power to make reincorporation decisions.

Keywords: corporate law, managers, shareholders, regulatory competition, Delaware, private benefits of control, network externalities

JEL Classification: G30, G38, H70, K22

Suggested Citation

Bar-Gill, Oren and Barzuza, Michal and Bebchuk, Lucian A., The Market for Corporate Law. Journal of Institutional and Theoretical Economics, Vol. 162, pp. 134-172, 2006; Harvard Law and Economics Discussion Paper No. 377. Available at SSRN: https://ssrn.com/abstract=275452 or http://dx.doi.org/10.2139/ssrn.275452

Oren Bar-Gill

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Michal Barzuza

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

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