The Modern Corporation as an Efficiency Instrument: The Comparative Contracting Perspective
OLIVER E. WILLIAMSON JANET BERCOVITZ
As James Q. Wilson reports, those who view the modern corporation from a power perspective regard it as a deeply problematic form of organization. 1 We examine the modern corporation from a different perspective and reach different results. As set out herein, both the key legal features of the corporation -- perpetuity, contracting rights, and limited liability -- and the main contractual regularities that link the firm with each of its constituencies are examined with reference to efficiency (or the lack thereof).
The efficiencies to which we refer are principally of a transaction cost rather than a production cost economizing kind. Such efficiencies are ascertained by examining the firm not in orthodox terms (as a production function, which is a technological construction) but in organizational terms (as a governance structure). This involves us in a microanalytical exercise in which the contractual relation between the corporation and each of its constituencies is examined in terms of the attributes of the transaction. The main obstacles to efficiency that we identify have their origins in information asymmetries.
The general efficiency approach, including a discussion of what we refer to as the "remediableness standard," is set out in section 1. The legal structure of the corporation, managerial discretion, and information im-