This paper develops a model of the competition among states in providing corporate law rules. Such competition is shown to produce optimal rules with respect to issues that do not have a substantial effect on management's private benefits but not with respect to issues that have such an effect. We analyze why a dominant state such as Delaware can emerge, as well as the price that this state will set and the profits it will make. The results of the model can help explain the existing empirical evidence. They also highlight the importance of the rules governing reincorporation and the potential benefits of giving shareholders the power to make reincorporation decisions.
Citation
Oren Bar-Gill, Michal Barzuza & Lucian A. Bebchuk, The Market for Corporate Law, 162 Journal of Institutional and Theoretical Economics 134–162 (2006).