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Abstract

The literature on competition in corporate law has debated whether competition is a "race to the bottom" or a "race to the top." This Article endorses the increasing scholarly consensus that competition improves corporate law but argues that the pace of innovation in corporate law is likely to be slow. Because benefits of corporate law innovation are not internalized, neither states nor firms will have sufficient incentives to innovate. That competitive federalism is "to the top" suggests that the model could be applied beyond the corporate charter context, for example to areas such as bankruptcy, but that benefits from such competition would accrue only gradually. This Article concludes by considering several means of stimulating competition in corporate law, including allowing firms to select different states for different aspects of corporate law and permitting private provision of law. Perhaps the most promising of these possibilities is the use of intellectual property law to protect corporate law innovations. Although recent decisions allowing patents for business methods make this approach feasible, the fit with existing patent law is imperfect. The scarcity in corporate law that leads to innovation is not a lack of ideas, but a lack of firms and states willing to accept the risks of being the first to innovate.

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