ABSTRACT

This chapter begins by describing the structure of the modern limited liability corporation and its primary focus on generating short-term profits. It explains the role of limited liability corporations in the US economy. The chapter describes the principal-agent problem and moral hazard, and examines how corporations use stock options to get executives to focus on short term profits and stock prices. It discusses corporate hegemony and analyzes the dark side of corporate behavior using specific examples. The chapter also examines evaluate the arguments of William Baumol and Milton Friedman that large corporations are behind the best aspects of modern capitalism—innovation and growth. It explores the appropriate role for government in the regulation of large corporations given the arguments for and against large corporations in modern capitalism. The legal rights of corporations gradually have been expanded in the United States since that time to include the right to free speech and to contribute unlimited amounts to political campaigns.