Business Associations, Economics Of

The application of law and economics to business associations involves an economic analysis of the various forms businesses may take. The principal characteristic distinguishing the various forms of business associations is the level to which management is separated from ownership. Business associations range from sole proprietorships, typically envisioned as “mom-andpop” stores, where there is likely to be little separation between owners and managers, to huge multinational corporations, where separation is great and each owner or shareholder has little influence on management.

Separation of ownership and management creates two types of risks, both of which increase with the degree of separation. Because the separation is greatest in the case of the corporate form, most of the economic analysis of business associations focuses on corporations. One of the ...