The single constituency argument in the economic analysis of business law

• Date: 19 May 2009
• DOI: https://doi.org/10.1108/S0193-5895(2009)0000024007
• Pages: 43-60
• Published date: 19 May 2009
• Author: David Millon

THE SINGLE CONSTITUENCY

ARGUMENT IN THE ECONOMIC

ANALYSIS OF BUSINESS LAW

David Millon

ABSTRACT

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

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ISSN: 0193-5895/doi:10.1108/S0193-5895(2009)0000024007

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owners of capital against those who are generally less well off, such as

workers and small-business owners.

1. INTRODUCTION

This essay addresses an interesting phenomenon in law-and-economics

scholarship in business law, specifically in the areas of corporate, bank-

ruptcy,

1

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

DAVID MILLON44