Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law

87 Pages Posted: 10 Jun 2003 Last revised: 5 May 2009

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Abstract

Corporate law scholars have long debated whether state competition for corporate charters is a "race for the bottom" or a "race for the top." This paper offers an analysis of the dynamics and performance of state charter competition. I show how the presence of managerial opportunism and externalities may lead states to adopt undesirable corporate law rules. The analysis identifies the various issues with respect to which state competition is likely to fail, and he advocates an expansion of federal regulation to govern all of these issues. I also connect the state competition question with the question of contractual freedom in corporate law and argue that many scholars should reconsider their inconsistent views regarding these two questions. Finally, I conclude by addressing potential objections to the expansion of federal corporate regulation.

Keywords: Delaware, state competition, federalism, race to the top, race to the bottom, corporate governance, corporate law, agency costs, managerial opportunism, private benefits of control, takeovers

Suggested Citation

Bebchuk, Lucian A., Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law. Harvard Law Review, Vol. 105, No. 7, pp. 1443-1510, 1992, Available at SSRN: https://ssrn.com/abstract=415301 or http://dx.doi.org/10.2139/ssrn.415301

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/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

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