Should History Lock in Lock-In?
17 Pages Posted: 14 Feb 2007
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 because 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: Suggested Citation