Should History Lock in Lock-In?

20 Pages Posted: 13 Feb 2006

See all articles by Larry E. Ribstein

Larry E. Ribstein

University of Illinois College of Law (deceased); PERC - Property and Environment Research Center

Multiple version iconThere are 2 versions of this paper

Date Written: February 2006

Abstract

The corporation does not allow owners, at least by default, to cash out their interests. This feature of "capital lock-in" facilitates durable and centralized management of corporate assets. It has been argued that capital lock-in is what has made the corporation the dominant business form and has enabled the modern firm. This argument for the historical significance of capital lock-in is intended to provide a rationale for rejecting reforms that would compromise lock-in. However, lock-in has costs, including inhibiting effective monitoring of managers. Moreover, the historical argument is inaccurate, since lock-in has always been available in the partnership form. Lock-in should be viewed as just one of many features of firms that evolve to meet business needs, not frozen in place by a dubious account of the past.

JEL Classification: K12, K20, K22, K35

Suggested Citation

Ribstein, Larry Edward, Should History Lock in Lock-In? (February 2006). U Illinois Law & Economics Research Paper No. LE06-005. Available at SSRN: https://ssrn.com/abstract=883648 or http://dx.doi.org/10.2139/ssrn.883648

Larry Edward Ribstein (Contact Author)

University of Illinois College of Law (deceased)

PERC - Property and Environment Research Center

2048 Analysis Drive
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Bozeman, MT 59718
United States

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