A regulation and transaction cost perspective on the design of corporate law

Abstract

For the corporate business model to be successful, it is important to align the interests of those who control and finance the firm. Corporate law has here an important task to fulfill. It offers a legal framework that can facilitate parties to conclude mutually preferable agreements at low transaction costs. The purpose of this paper is to show how to design corporate law to fulfill this task and apply this knowledge to a Swedish case. A two-dimension model that simultaneously considers both the regulation intensity and the level of default of corporate law is presented. The earlier literature treats these dimensions separately. By adding a transaction cost perspective to our model, we assess different regulatory techniques and examine how the Swedish legislation can be amended to help corporations by offering a standard contract that lowers the transaction costs of contracting. This can be achieved if default rules or standards of opt-out character are combined with other regulatory techniques with lower transaction costs such as opt-in alternatives and menus. We also show how our model can be used in other studies as a tool to analyze the design of legal rules.

Legal Advisors and Family Business Owners: A Transaction Cost Understanding of “the Ownership Contract”

“…It includes everything from formal contracts, such as the shareholders’ agreement, to implied assent and culturally induced practice. In addition, the legislation includes rules, both mandatory and default, that regulate the contractual relationship among owners (Almlöf & Bjuggren, 2019). A well-functioning ownership contract aligns the interests and incentives of the owners, stipulates common aims, and counteracts or helps to solve conflicts.…”

“…Only if the default rules of the given legal framework are adapted to the uniqueness of family businesses and provide an effective solution hereto is the legal framework a substantive alternative to the market. However, the respective legal frameworks of Sweden and Denmark are not adapted to the particular needs of family businesses (Almlöf & Bjuggren, 2019; Neville, 2003). Our findings show signs of market failure of the market for legal advice to family business owners, and therefore, grounds for regulating the market arise.…”

Economic Considerations of Legal Delimitation: Evidence from Judicial Verdicts in Bangladesh Courts

“…Hahn and Stavins (2011) apply the Coasean theory to analyse the efficient allocation of emission trading through the cap-and-trade system. Recent literature also focuses on applying transaction cost theory to the transfer of agriculture farmland (Gao et al, 2019), designing corporate law (Almlöf and Bjuggren, 2019), and low carbon technologies (Mundaca et al, 2013).…”

Crime and punishment in times of pandemics

“…A particularly relevant change is intertwined with another well-established behavioral effect, known as “sticky defaults” (see, e.g. Almlöf & Bjuggren, 2019 ; Cappelletti et al., 2014 ): in a wide range of contexts, scholars have found that people tend to stick to the default they are given, even when doing so is costly. In the context at hand, many defaults that the population is used to in stable times suddenly change, as movement is restricted, social contact is prohibited, etc.…”