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Abstract

We examine the cooperative production of corporate governance. We explain that this production does not occur exclusively within a “team” or “firm.” Rather, several aspects of corporate governance are quintessentially market products. Like Blair and Stout, we view the shareholder as but one of many stakeholders in a corporation. Where we depart from their analysis is in our view of the boundaries of a firm. We suggest that they overweight the intrafirm production of control. Focusing on the primacy of a board of directors, Blair and Stout posit a hierarchical team that governs the economic enterprise. We observe, however, that for many of the most important governance decisions there is, in fact, no hierarchy. In those cases, governance emerges from an intertwined series of market transactions. To use the nomenclature of Blair and Stout, there are many players, but there is no coach, and thus, no “team.” Rather, the firm is controlled by a series of relationships—some of which are governed within the firm and some of which are governed and enforced externally. Ours, then, is a true Coasean framework, suggesting that important implications arise when we differentiate cases where the value of market discipline on stakeholders exceeds the large transaction costs that could be reduced by integration or team creation from cases where the opposite is true. We provide some preliminary conclusions on those implications.