The Market for Corporate Law

Lucian Bebchuk (), Oren Bar-Gill and Michal Barzuza

No 3553, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: G30 G38 H70 K22 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Market for Corporate Law (2006)
Working Paper: The Market for Corporate Law (2002)
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