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Institutional Support of the Firm: A Theory of Business Registries

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  • Benito Arruñada

Abstract

Registering originative business contracts allows entrepreneurs and creditors to choose, and courts to enforce market-friendly contract rules that protect innocent third parties when adjudicating disputes on subsequent contracts. This reduces information asymmetry for third parties, which enhances impersonal trade. It does so without seriously weakening property rights, because it is rightholders who choose or activate the legal rules and can, therefore, minimize the cost of any possible weakening. Registries are essential not only to make the chosen rules public but to ensure rightholders commitment and avoid rule-gaming, because independent registries make rightholders choices verifiable by courts. The theory is supported by comparative and historical analyses.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 508.

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Date of creation: Sep 2010
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Handle: RePEc:bge:wpaper:508

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Keywords: Property rights; theory of the firm; business registries; formalization; starting a business; impersonal transactions;

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  1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andre Shleifer, 2000. "The Regulation of Entry," Harvard Institute of Economic Research Working Papers 1904, Harvard - Institute of Economic Research.
  2. Henry Hansmann & Reinier Kraakman, 2000. "The Essential Role of Organizational Law," Yale School of Management Working Papers ysm147, Yale School of Management, revised 01 Nov 2001.
  3. Benito Arruñada, 2008. "Mandatory accounting disclosure by small private companies," Economics Working Papers 1090, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  5. Hansmann, Henry & Kraakman, Reinier, 2002. "Property, Contract, and Verification: The Numerus Clausus Problem and the Divisibility of Rights," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages S373-420, June.
  6. Masten, Scott E, 1988. "A Legal Basis for the Firm," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 181-98, Spring.
  7. R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
  8. John Armour, 2006. "Legal capital: an outdated concept," ESRC Centre for Business Research - Working Papers wp320, ESRC Centre for Business Research.
  9. Williamson, Oliver E, 1996. "Revisiting Legal Realism: The Law, Economics, and Organization Perspective," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 383-420.
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