Document Type

Article

Comments

The Possibility of Inefficient Corporate Contracts, 60 University of Cincinnati Law Review 387 (1991)

Abstract

As in other areas of law, the application of game theory to corporations began with the use of the prisoners dilemma. Several scholars noted that the use of two-tier tender offers might place target shareholders with the dilemma of either tendering their shares at a price below their evaluation or facing a the back end freeze out purchase at an even lower amount. The inroads of the "new learning" in game theory have, until very recently, been rarely applied to corporate law issues. This "new learning" developed by economists in the 1970's and 1980's consists largely of theoretical breakthroughs in how to model dynamic games in which "players" have private information.

For those uninitiated in this new learning, let me suggest three ways to tell when you are reading a game-theory piece that is byproduct of this new learning. First, games will often be depicted with game trees instead of pay-off matrices. Second, the game will specify that there are two (or multiple) types of a particular class of player. And third, there will often be asymmetric information. If you see an article with anyone of these attributes, odds are that the author is toiling in this new vineyard.

Date of Authorship for this Version

1991

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