Academic

Hayden & Ellis on Efficiency & Corporate Law Theory

By Lawrence Solum

Grant M. Hayden (Hofstra University - School of Law) & Stephen E. Ellis (University of Oklahoma) have posted The Cult of Efficiency in Corporate Law (Virginia Law & Business Review, Vol. 5, No. 2, Fall 2010) on SSRN. Here is the abstract:

This paper challenges a fundamental assumption of corporate law scholarship. Corporate law is heavily influenced by economics, and by normative economics in particular. Economic efficiency, for example, is seen as the primary goal of good corporate governance. But this dependence on standard notions of economic efficiency is unfortunate, as those notions are highly problematic. In economic theory, efficiency is spelled out in terms of individual preference satisfaction, which is an inadequate foundation for any sort of normative analysis. We argue that on any account of the good, people will sometimes prefer things that aren?t good for them on that account. Giving people what they want, then, isn?t necessarily an accomplishment, and thus the normative assessment of economic outcomes is much more complicated than economists recognize. This fact is something that should be reflected in corporate law scholarship, and would greatly expand the range of possible considerations when restructuring corporate law.

This short essay provides a very accessible exposition of Pareto efficiency & its limitations. Recommended.

Full post as published by Legal Theory Blog on December 15, 2010 (boomark / email).