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Abstract

In their influential article, A Team Production Theory of Corporate Law, Professors Margaret Blair and Lynn Stout explained how corporate law might be viewed as an attempt at solving what is known as the team production problem. At its core, this problem has to do with the opportunistic behavior that arises when multiple economic actors make investments—whether of labor, capital, or otherwise—in a business venture where these investments are said to be “firm specific” because they cannot be easily withdrawn and redeployed in other projects. The problem is how to construct a governance regime that will create incentives for the various team members to act optimally in light of these firm-specific investments. In this Essay, the author make two contributions. First, the author sketches a modest empirical project for testing the normative desirability of Blair & Stout’s mediating hierarch concept as a solution to the team production problem. Second, this Article argues that, depending on the results of that empirical project, it may be desirable to allow public corporations, as a matter of corporate law, to contract around the shareholder profit maximization norm.