Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction

Article — Volume 98, Issue 5

98 Va. L. Rev. 935
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This paper exposes and analyzes the rise of Nevada as an almost liability-free jurisdiction. Contrary to conventional wisdom – that Nevada imitates Delaware law but does not make any profits from competing with it – Nevada has embarked on a lucrative strategy of market segmentation with a differentiated product – a shockingly lax corporate law.

Market segmentation with lax law has allowed Nevada to overcome significant barriers to entry. By tailoring its product to a particular subset of the market, Nevada gained market power in a segment that is not served by Delaware. Nevada’s clear, no-liability law makes Delaware’s competitive advantages less significant and leaves it unable to effectively respond.

Firms may incorporate in Nevada for a variety of reasons that include extracting private benefits, saving on incorporation taxes, and minimizing litigation costs. The data, however, suggest that at least some firms choose Nevada for the first, less benign reason.

Normatively, policy makers should find it worrisome that high agency costs firms, which would benefit the most from regulation, disproportionally choose Nevada’s lax law. Another reason for concern is that Nevada, by creating a competitive pressure towards the bottom, may be dragging Delaware down.

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  Volume 98 / Issue 5  

Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction

By Michal Barzuza
98 Va. L. Rev. 935

Enforcing (but not Defending) ‘Unconstitutional’ Laws

By Aziz Z. Huq
98 Va. L. Rev. 1001

The Expectation Remedy Revisited

By Daniel Markovits and Alan Schwartz
98 Va. L. Rev. 1093

Examining the Conflict Between Municipal Receivership and Local Autonomy

By Lyle Kossis
98 Va. L. Rev. 1109