Pan F07 Corp outline 2007

Pan F07 Corp outline 2007 - 2/12/2008 5:59:00 PM...

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12/02/2008 20:59:00 Introduction Efficiency of social structure – Corporate law deals with the creation of wealth by making easier collective action. Corporate law deal with the creation and governance of private legal entities. Economic efficiency is the standard by which this type of law should be evaluated. o Pareto Efficiency – all resources are allocated in such a way that any reallocation that makes one person better off would make someone else worse off. Only through voluntary exchange in which individuals reveal their own preferences for one outcome over another that we can be sure that any transfer or redistribution yields a utility gain for both sides of the transaction. And it only when all parties affected be a transfer experience a net utility gain that we can be certain there is a net utility gain from the transaction overall. That transaction is called Pareto- efficient. It is agnostic about the legitimacy of the original distribution of assets It is almost impossible for the courts to make a decision that doesn’t make someone worse off. Almost all public policy and private arrangements fail the pareto efficiency test because they always seem to make at least one person worse off. o Kaldor-Hicks Efficiency - an act or rule is efficient if at least one party would gain from it after all those who suffered a loss as a result of the transaction or policy were fully compensated. A transaction is efficient if the aggregate monetary gains to the winners exceed the aggregate monetary losses to the losers. Does not care about the legitimacy of the initial distributions. Has the advantage of permitting lawyers and policy makers to compare the costs and benefits of a given legal action or legal change with the same metric. Has become the standard tool for evaluating enterprise law. Law form Inside and Out: shared meanings and skepticism o Fairness and efficiency – the search for efficiency is at the core of organizational law. Courts apply, rather than create law and they use concepts like efficiency to justify their choices. Courts are disinclined to acknowledge the policy rationale for their decisions. Corporations law addresses fairness to shareholders because they are the residual claimants to the corporation’s income and assets, protection of their interests through a fairness norm is generally consistent with increasing total corporate wealth and with moving towards a Kaldor-Hicks efficient state
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Development and the modern theory of the firm - o Ronald Coase’s 1937 insight – suggests that firms exist because in a world of positive transactions costs it is sometimes more efficient to organize complex tasks within a hierarchal organization. Firms permit transactions costs to be accomplished more cheaply. o
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This note was uploaded on 02/14/2008 for the course LAW 7060 taught by Professor Haas during the Fall '07 term at Yeshiva.

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Pan F07 Corp outline 2007 - 2/12/2008 5:59:00 PM...

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