A Team Production Theory of Corporate Law

In this chapter, the authors take issue with both the prevailing principal-agent model of the public corporation and the shareholder wealth maximization goal that underlies it. Because corporations are fictional entities that can only act through human agents, problems of agent fealty are frequently encountered by those who study and practice corporate law. Thus, while the principal-agent problem may be important in understanding the business firm, authors question whether it necessarily provides special insight into the theory of the public corporation. The authors explore an alternative approach that they believe may go much further in explaining both the distinctive legal doctrines that apply to public corporations and the unique role these business entities have come to play in American economic life: the team production approach. In the economic literature, team production problems are said to arise in situations where a productive activity requires the combined investment and coordinated effort of two or more individuals or groups.