The Economic Structure of Corporate Law

Frank Easterbrook and Daniel Fischel argue that the rules and practices of corporate law mimic the contractual provisions that investors, managers, and others involved in a corporate enterprise would reach if they could bargain about every contingency at zero cost and flawlessly enforce their agreements. But because bargaining and enforcement are costly, corporate law provides the rules and an enforcement mechanism that govern relations among those who commit their capital or their time to such ventures. The authors work out the reasons for supposing that this is the exclusive function of corporate law and the implications of this perspective for the myriad things that investors, managers, and others do within the framework of the corporate organization.