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The Secret of Growth Is Financing Secrets: Corporate Law and Growth Economics

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  • Robert Cooter
  • Hans Bernd Schäfer

Abstract

Innovative businesses unite capital and new ideas, which requires overcoming the double trust dilemma: investors fear losing their wealth and innovators fear losing their ideas. To overcome this dilemma, seventeenth-century spice traders invented the joint stock company with an essential feature of modern corporations: entitlements to marketable shares of future profits. Using the corporate form, innovative business ventures can often be organized so that innovators expect to earn more from their share of profits than from stealing the investors' money, and investors expect to earn more by preserving the company's secrets than by disseminating them. The corporation thus provides a protected space for holding creative secrets while developing them. By developing the innovations that transform economies, the corporation became the dominant economic form of business organization.

Suggested Citation

  • Robert Cooter & Hans Bernd Schäfer, 2011. "The Secret of Growth Is Financing Secrets: Corporate Law and Growth Economics," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 105-123.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/663095
    DOI: 10.1086/663095
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    References listed on IDEAS

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    Cited by:

    1. Méon, Pierre-Guillaume & Sekkat, Khalid, 2015. "The formal and informal institutional framework of capital accumulation," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 754-771.

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