The Structure of the Enterprise Law: Complementarities Among Contracts, Markets, and Laws in the Incentive Bargain of the Firm

Abstract

The Structure of the Enterprise Law: Complementarities among Contracts, Markets, and Laws in the Incentive Bargain of the Firm Zenichi Shishido I. Introduction The firm is a consecutive joint project among providers of indispensable capital, which includes both monetary capital and human capital, for the project. Like other joint projects, the firm cannot maximize the added value without achieving an efficient incentive bargain among those indispensable capital providers, i.e., shareholders and creditors as monetary capital providers, and management and employees as human capital providers. Markets and laws are two basic infrastructures of the incentive bargain of the firm. Therefore, law matters for successful incentive bargaining among the four different capital providers. The important point is that law does not by itself affect the incentive bargain among those four players, but rather affects it complementarily with markets. We can observe complementarities among different markets, and complementarities between law and contracts, too. Also a specific law, in many cases, would not affect the incentive bargain independently, but affects it complementarily with other laws. Law has traditionally been studied by dividing a legal system into its many substantive parts. Now, however, we must adopt a new perspective in order to study law as an infrastructural element of the firm’s incentive bargain. I will propose a new concept, the “enterprise law” and define it as any law which will affect the incentive bargain of the firm. To show the structure of the enterprise law, we need to not only gather different areas of law, such as corporate law, securities regulation, bankruptcy law, labor law, and tax law, but also analyze complementarities among different laws and complementarities between law and Zenichi Shishido, Dokizuke no Shikumi toshiteno Kigyo: Insenthibu Shisutemu no Hoseido Ron [The Firm as an Incentive Mechanism: The Role of Legal Institution] 1