Introduction

How ought judges to decide cases? One answer, often associated with the economic analysis of law, asserts that judges ought to choose legal rules that are efficient or that maximize “wealth.” This claim, which stirred great controversy in the late 1970s and early 1980s, has largely subsided into the background in areas outside of corporate and commercial law. Within corporate and commercial law, however, academic legal discussion has increasingly adopted an economic perspective. The academic debate in the area of corporate and commercial law has thus largely focused not on whether the courts should pursue efficiency but on how the courts should promote this aim. Should any legal rules impose mandatory obligations on parties? What default rules are best? What is the optimal structure of priority rules in bankruptcy?

The discrepancy in the intellectual histories of efficiency as a judicial goal in corporate and commercial law and in the law more generally has some justification. The arguments against the general claim have less force against the claim restricted to corporate and commercial law. The argument for instance that law ought to pursue various conceptions of fairness has less force in the realm of corporate and commercial law, where transactions are at arm's lengths between well-informed parties, each of whom seeks to maximize its profit. More importantly, a reasonably straightforward institutional defense of the efficiency claim in corporate and commercial law can be mounted. Briefly, it has the following elements.