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Corporations

Corporations. G751 Eric Rasmusen, erasmuse@indiana.edu March 4, 2014. The Textbook Firm Fixed cost, rising MC. Possibly sharp capacity. Other firms can enter in the long run. Rents and quasi-rents. Viner’s LR cost curves, including the U-shaped one and the CRS one.

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Corporations

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  1. Corporations G751 Eric Rasmusen, erasmuse@indiana.edu March 4, 2014

  2. The Textbook Firm Fixed cost, rising MC. Possibly sharp capacity. Other firms can enter in the long run. Rents and quasi-rents. Viner’s LR cost curves, including the U-shaped one and the CRS one. Natural monopoly.

  3. The Size of a Firm--- Coase Transaction costs vs. management costs. Why not one big firm?

  4. Classic Papers Ronald H. Coase, The Nature of the Firm, 4 ECONOMICA 386 (1937). Armen A. Alchian & Harold Demsetz, Production, Information Costs, and Economic Organization, 62 AM. ECON. REV. 777 (1972). Michael C. Jensen & William H. Meckling, The Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, 3 J. FIN. ECON. 305 (1976). Sanford J. Grossman & Oliver D. Hart, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration, 94 J. POL. ECON. 691 (1986) (a firm consists of "those assets that it owns or over which it has control")

  5. What is a firm? Knight: Assets with a residual claimant, in a risky situation. Coase: A collection of assets ruled by authority. Alchian-Demsetz: Monitoring framework. Jensen and Meckling: A Nexus of Contracts. The shareholders aren’t the owners. They aren’t special. Hart: Property owned in a particular way to avoid The hold-up problem. Me: a collection of assets with the same owners that are used for earning money, as well, perhaps, as for other things. Boring, noneconomic definition.

  6. Dimensions 1. Register with the state? 2. Required governance structure? 3. Legal Personality? 4. Limited Liability? 5. Tradeable ownership? 6. Perpetual Life?

  7. Sole Proprietorship, Partnership dfgdfgg fdgfd

  8. Trusts These are NOT contracts. The grantor gives property to the trust, under care of a trustee. The trustee has legal title (ownership). The grantor says who the beneficiary is--- who has the “equitable title”. The trust pays tax, but is not a legal person---it cannot sue. No registration with the state is needed, unless it is a charity. Civil law countries don’t have trusts.

  9. Nonprofit Corporations and Charitable Tursts They raise capital through donations. They may or may not be tax exempt--- they are if they are a nonpolitical charity. They file form 990. http://www.rockefellerfoundation.org/uploads/files/27cb690a-bfce-4ff9-a839-80bca57ee49a.pdf

  10. Corporate Objectives To help shareholders? Stakeholders? Profit? Religion? Daytime Baseball? Duty of Loyalty Duty of Care Business Judgement Rule

  11. Hansmann and Reinier Kraakman, Henry Hansmann and Reinier Kraakman, The End of History for Corporate Law, 89 GEORGETOWN L. J. 439 (2001) Henry Hansmann and Reinier Kraakman, REFLECTIONS ON THE END OF HISTORY FOR CORPORATE LAW, August 2011 http://ssrn.com/abstract=2095419 Forthcoming in Abdul Rasheed and Toru Yoshikawa, eds., Convergence of Corporate Governance: Promise and Prospects (Palgrave-MacMillan 2012).

  12. Eisenberg Melvin A. Eisenberg, The Conception That the Corporation Is a Nexus of Contracts, and the Dual Nature of the Firm , 24 J. Corp. L. 819 (1998), http://scholarship.law.berkeley.edu/facpubs/547

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