Harvard Law Review - Delaware's Politics

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DELAWARE'S POLITICS
by Mark J. Roe [ Full Text ]

VOL. 118 · June 2005 · NO. 8
118 Harv. L. Rev. 2491 (2005)

Delaware makes the state corporate law governing most large American corporations. Since Washington can take away any, or all, of that lawmaking authority —- and, via the securities laws, already has taken away much —- a deep conception of American corporate law should show how, when, and where Washington leaves that lawmaking authority in state hands.
The interest groups and ideas in play in Delaware are narrow, the array in Congress wide. Three key public choice results emanate from this difference. First, the major state-level players usually want to minimize federal authority in making corporate law because a federal deal splits the pie with outsiders while a local deal cuts in fewer players. Second, because federal players may act if they see state results as lopsided, interest groups who could dominate Delaware lawmaking have reason to forgo a winner-take-all strategy. The Delaware players can be seen as a local caucus within national lawmaking, with Delaware as the institution that allows them to caucus and usually make corporate law first. Third, we can delineate the space where the states have room to maneuver from where federal authorities loom.
Federal authorities can change the initial state-made result, with players and ideologies absent in Delaware but big in Washington affecting the federal outcome. Those new players and ideas usually give the original Delaware players reason to resist federal action. And because the federal agenda is large and Delaware’s is small, Delaware’s decisions often become a stable status quo. But when media saliency puts the matter on the federal agenda or when Delaware’s primary players disagree or when the matter strikes Washington players as important to the American economy, Delaware loses its dominance. Delaware has wide discretion and first-mover advantages, but its independence even when wide is not without limit, ending when Washington is provoked.

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