An Economic Analysis of Corporate Directors' Fiduciary Duties

Maria Gutierrez

RAND Journal of Economics, 2003, vol. 34, issue 3, 516-35

Abstract: I present a principal-agent model where the shareholders (principal) can take legal action against the director (agent). The court's decision provides a verifiable but costly and imperfect signal on the director's fulfillment of his fiduciary duties. The director's remuneration can be made contingent not only on performance but also upon the court's decision. I show that when damage awards are high enough, the widespread use of liability insurance and limited-liability provisions that is observed in the United States is optimal because it allows for a more efficient litigation strategy to be ex post rational for the shareholders. Copyright 2003 by the RAND Corporation.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (5)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rje:randje:v:34:y:2003:i:3:p:516-35

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in RAND Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().