Team Production Revisited

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by a description of principal-agent relationships among shareholders and managers. This Article shows that the model retains descriptive robustness, despite the substantial accretion of shareholder power during the two decades since its appearance. The Article also shows that the model taught three groundbreaking lessons to corporate legal theory. First, nothing binds microeconomic analysis together with a theory of the firm rooted in shareholder primacy. Second, microeconomics, with its emphases on efficiency and maximization, can be deployed in the service of an allocatively sensitive description of corporate governance, providing a more capacious methodological tent than anyone in corporate law understood prior to Blair and Stout’s intervention. Third, it is not only possible but arguably necessary to take corporate law seriously when articulating a microeconomic theory of corporate production. To the extent an economic model’s description of the appropriate legal framework differs materially from the inherited legal framework, there is a possible, even a probable, infirmity in the model.