On Public Versus Private Provision of Corporate Law

28 Pages Posted: 29 Feb 2008 Last revised: 18 Mar 2011

See all articles by Gillian K. Hadfield

Gillian K. Hadfield

University of Toronto; Vector Institute for Artificial Intelligence; OpenAI; Center for Human-Compatible AI

Eric L. Talley

Columbia University - School of Law; European Corporate Governance Institute (ECGI)

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Date Written: October 1, 2006

Abstract

Law in modern market societies serves both democratic and economic functions. In its economic function, law is a service, a means of enhancing the value of transactions and organizations. Yet modern market economies continue to rely on the state, rather than the market, to provide this service. This article investigates whether private provision of law may be superior to public provision. We look in particular at corporate law, where there is a substantial literature exploring the efficiency implications of "regulatory competition" and compare this competition with market competition between private providers. Drawing from the well-known framework of spatial models of imperfect competition, we argue that while neither public nor private competition may lead to the optimal corporate law regimes, there are at least some reasons to believe that private provision may be preferable. Specifically, we present a model that demonstrates when regulatory competition is likely to produce widespread emulation and little innovation. Private competition, in contrast, is more likely to lead to greater "product" differentiation, which benefits heterogeneous consumers of corporate law services in the short term. Moreover, such differentiation also has long-term benefits, as providers are able to "learn" more about business organizations' demand-side characteristics and can thus tailor their services to business needs more effectively.

Suggested Citation

Hadfield, Gillian K. and Talley, Eric L., On Public Versus Private Provision of Corporate Law (October 1, 2006). The Journal of Law, Economics, and Organization, Vol. 22, No. 2, pp. 414-441, 2006, Available at SSRN: https://ssrn.com/abstract=1098693 or http://dx.doi.org/10.1093/jleo/ewj021

Gillian K. Hadfield (Contact Author)

University of Toronto ( email )

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Vector Institute for Artificial Intelligence ( email )

OpenAI ( email )

Center for Human-Compatible AI ( email )

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Eric L. Talley

Columbia University - School of Law ( email )

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HOME PAGE: http://www.erictalley.com

European Corporate Governance Institute (ECGI) ( email )

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Belgium

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