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The normative side of the nexus of contracts theory relies on an extended version of the following argument: corporations are contracts; contracts reflect Pareto improvements; Pareto improvements, by their very nature, promote the good; therefore, corporations promote the good.
The nexus of contracts model does not represent the reality of the modern corporation, and it has misled us for too long.
The nexus of contracts theory is thus not really a theory of the firm at all, but rather a theory of agency costs within a certain type of firm.
1416, 1426 (1989) (describing the nexus of contracts theory as "a shorthand for the complex arrangements of many sorts that those who associate voluntarily in the corporation will work out among themselves").
1, 9 (2002) ("The dominant model of the corporation in legal scholarship is the so-called nexus of contracts theory.