The John M. Olin Center

Paper Abstract

376. Lucian Bebchuk and Assaf Hamdani, Vigorous Race or Leisurely Walk: Reconsidering the Debate on State Competition over Corporate Charters, 07/2002; subsequently published as "Vigorous Race or Leisurely Walk: Reconsidering the Competition Over Corporate Charters" in Yale Law Journal, Vol. 112, No. 3, December 2002, 553-615.

Abstract: The long-standing and central debate on state competition in corporate law has been largely premised on a widely held belief that, whether the race is toward the top or the bottom, states vigorously "race" in seeking to attract incorporations. In this paper, we argue that this belief is in fact incorrect and that the competitive threat to Delaware's dominant position in the market for incorporations is quite weak. We present evidence that Delaware's position in this market is far more dominant and secure than previously recognized, and we analyze the barriers to entry that can explain this state of affairs. The weak-competition account that we put forward casts substantial doubt on the extent to which state competition can be relied on-even on the most favorable view of it-to produce optimal corporate rules. Finally, this account strengthens the case for some form of federal intervention; at the minimum, it would be desirable for federal law to invigorate competition by permitting shareholders to initiate and approve reincorporations and by providing a federal incorporation option.

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