The Market for Corporate Law

45 Pages Posted: 4 Nov 2002

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

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

Oren Bar-Gill

Harvard Law School

Michal Barzuza

University of Virginia School of Law

Multiple version iconThere are 3 versions of this paper

Date Written: September 2002

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 analyse why a dominant state such as Delaware can emerge, the prices that the dominant state will set and the profits it will make. We also analyse the roles played by legal infrastructure, network externalities, and the rules governing incorporations. The results of the model are consistent with, and can explain, existing empirical evidence; they also indicate that the performance of state competition cannot be evaluated on the basis of how incorporation in Delaware in the prevailing market equilibrium affects shareholder wealth.

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

JEL Classification: G30, G38, H70, K22

Suggested Citation

Bebchuk, Lucian A. and Bar-Gill, Oren and Barzuza, Michal, The Market for Corporate Law (September 2002). CEPR Discussion Paper No. 3553. Available at SSRN: https://ssrn.com/abstract=344141

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)

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

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