Market Failures and the Corporation

The competitive “market failures” identified by Samuelson and Diamond in a certain world, justify government intervention in a free market and are a major influence on cur-rent macroeconomic theory. We demonstrate that they arise from modeling firms as self-employed agents instead of corporations. Corporations with transferable equity can make intertemporal contracts, including the optimal lifecycle income of its stakeholders, which are irrational for unincorporated firms. They eliminate the need for individuals to trade, be paid their marginal product, and save. Corporations eliminate the alleged “market failures”, need for government intervention, and a motivation for current macroeconomic modeling.