Legal Diversification

You may also like...

4 Responses

  1. Lawrence Cunningham says:

    Congrats on another pioneering paper and great placement.

    Sounds as if legal diversification is the flip-side, the positive side, of regulatory arbitrage, which got a bad name amid the 2008 financial crisis (and often amid crises that produce “bubble laws” that homogenize rather than maintain diversity).

    It will be interesting to see if investors would really follow this route in practice. They don’t tend to think about the differences you highlight very much and tend to believe that they can be contracted around (that corporate law, securities law, etc are “trivial” to recall an old phrase from a famous paper).

  2. Kelli Alces says:

    Thanks, Larry. I should add the comparison to regulatory arbitrage to the paper. Corporate and securities law may be flexible default rules, but I hope that flexibility is not mistaken for irrelevance. The choices parties make about what terms to use (or default rules to adopt) to govern their relationships still matter very much. I suppose I hope one consequence of the paper will be that investors realize they should pay more attention to the differences between default rules and why it is important to have a diverse menu of defaults to choose among.

  3. Miriam Cherry says:

    Not sure (from practical standpoint) that investors think that much about the legal differences but I look forward to reading the essay…

  4. Kelli says:

    Thanks, Miriam. Investors certainly consider whether a firm is public or private when deciding how to invest and that is a legal difference. Of course, they may not consider differences in business or governance form, but the essay does not argue that they do, rather, that they should. It is a normative, not positive, thesis.