Price considerations in the market for corporate law
By: Michal Barzuza.
Contributors: John M. Olin Center for Law, Economics, and Business.
Series: Discussion paper -- no. 486; Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 486.
Publisher: Harvard Law School
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The long-standing debate over the market for corporate law has been premised on the assumption that to maximize its revenues, the dominant state, Delaware, seeks to maximize the number of domestic incorporations.  This article questions the common assumption that increasing the number of incorporations necessarily increases revenues.  Instead, it highlights the role that price, in addition to quantity, plays in determining Delaware's revenues.  A price considerations analysis of the market for corporate law demonsatrates that Delaware's revenues are determined by the following trade-off: On the one hand, the more pro-managerial Delaware law becomes, the more firms it attracts (because managers want to relocate firms to states with pro-managerial laws), while on the other hand, the less it can charge for incorporations (because shareholders will demand compensation in return for accepting pro-managerial laws).  As a result, a law that balances managers' and shareholders' interests would result in higher state revenues than catering mainly to one of these groups by racing either to the top or the bottom.Presenting new data and analyzing existing ones, the article shows that Delaware law and the services it provides do not maximize the number of incorporations in the state: instead, they have the effect of deriving significant revenues for the state.  Moreover, price considerations analysis accounts for developments in Delaware and other states' law, patterns of incorporations, the higher Tobin's Q ratios of firms incorporated in Delaware and the fact that these ratios decrease over time, the lack of competition, and other characteristics of the market for corporate law.The analysis has implications for the assessment of the current system of state corporate charters and the determination of the desirable extent of federal intervention in the market for corporate law"--John M. Olin Center for Law, Economics, and Business web site.
Notes: Title from PDF file as viewed on 3/28/2007.

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