Paper #1195

Title:

Institutional support of the firm: A theory of business registries

Author:

Benito Arruñada

Date:

January 2010 (Revised: September 2010)

Abstract:

Registering originative business contracts allows entrepreneurs and creditors to choose, and courts to enforce market-friendly “contract” rules that protect innocent third parties when adjudicating disputes on subsequent contracts. This reduces information asymmetry for third parties, which enhances impersonal trade. It does so without seriously weakening property rights, because it is rightholders who choose or activate the legal rules and can, therefore, minimize the cost of any possible weakening. Registries are essential not only to make the chosen rules public but to ensure rightholders’ commitment and avoid rule-gaming, because independent registries make rightholders’ choices verifiable by courts. The theory is supported by comparative and historical analyses.

Keywords:

property rights, theory of the firm, business registries, formalization, starting a business, impersonal transactions.

JEL codes:

O17, K22, K23, L59.

Area of Research:

Business Economics and Industrial Organization / Finance and Accounting

Published in:

The Journal of Legal Analysis, Vol. 2 (2), pp 525-576, Fall 2010.

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