A Team Production Theory of Corporate Law

WHO owns a corporation? Most economists and legal scholars today seem inclined to answer: Its shareholders do. Contemporary discussions of corporate governance have come to be dominated by the view that public corporations are little more than bundles of assets collectively owned by shareholders (principals) who hire directors and officers (agents) to manage those assets on their behalf. 1 This principal-agent model, in turn, has given rise to two recurring themes in the literature: First, that the central economic problem addressed by corporation law is reducing “agency costs” by keeping directors and managers faithful to shareholders’ interests; and second, that the primary goal of the public corporation is—or to shareholders’ wealth.