The single constituency argument in the economic analysis of business law

Date19 May 2009
Published date19 May 2009
AuthorDavid Millon
David Millon
The essay points out a common thread that runs through law-and-
economics business law scholarship. Working largely independently of
each other, economically oriented scholars working in different areas have
argued that the law should focus on the interests of a single constituency –
shareholders in corporate law, creditors in bankruptcy law, and
consumers in antitrust law. Economic analysts thus have rejected
arguments advanced by ‘‘progressive’’ scholars working in each of these
areas that the law should instead concern itself with the full range of
constituencies affected by business activity. The law-and-economics single
constituency claim rests in part on skepticism about judicial competence,
but the underlying premise is an objection to the use of law for
redistributive purposes. The primary value is efficiency, defined in terms
of market-generated outcomes. It is argued here that this political
commitment implies a strong tendency toward maintenance of the existing
distribution of wealth, and that even more importantly, the single
constituency claim may actually have redistributive implications. In each
of these areas of business law, however, a regressive program favors
Law & Economics: Toward Social Justice
Research in Law and Economics: A Journal of Policy, Volume 24, 43–60
Copyright r2009 by Emerald Group Publishing Limited
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1108/S0193-5895(2009)0000024007
owners of capital against those who are generally less well off, such as
workers and small-business owners.
This essay addresses an interesting phenomenon in law-and-economics
scholarship in business law, specifically in the areas of corporate, bank-
and antitrust law. In each of these areas, ‘‘progressive’’ scholars
have argued that the law should take into account the well-being of a number
of constituencies whose interests are affected by business activity. For
example, in corporate law, employees have received a great deal of attention,
and regard has also been given to creditors, customers and suppliers, and the
local communities in which business is conducted. Progressive bankruptcy
law scholars have also emphasized employee interests, as well as those of
other constituencies who have a stake in a firm’s continued existence. So-
called populists have argued that antitrust law should promote a range of
social and political values through the encouragement of small business and
opposition to concentrated production. In contrast, law-and-economics
scholars in each of these areas have argued forcefully that the law should
promote the interests of only a single constituency: corporate law should
focus on shareholders, bankruptcy law on creditors, and antitrust on
consumers. Other interested stakeholders should fend for themselves,
through contractual self-protection.
These ‘‘single constituency’’ arguments dominate academic discussions of
corporate and antitrust law. They are also ascendant in judicial thinking
about antitrust and very influential in corporate law. The law-and-
economics approach to bankruptcy, though certainly very prominent, has
been somewhat less prevalent in the academy and has yet to have a
significant impact in the courts.
I will briefly rehearse the arguments that have been deployed on behalf of
the single-constituency claim in each of the three areas, indicating questions
regarding the arguments’ supporting claims. I will then offer some thoughts
about what these parallel developments tell us of the underlying assump-
tions and values of law-and-economics scholarship in business law,
specifically that the single-constituency position in each area is based on a
commitment to market-generated outcomes, and that the effect is to endorse
the existing distribution of wealth. I will also suggest that, though assertedly
based on hostility to redistribution, in each case the single-constituency

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