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By considering what we identify as a problem inherent in the 'nature of the firm'—the risk of abuse of authority—we propound the conception of a social contract theory of the firm which is truly Rawlsian in its inspiration. Hence, we link the social contract theory of the firm (justice at firm's level) with the general theory of justice (justice at society's level). Through this path, we enter the debate about whether firms can be part of Rawlsian theory of justice showing that corporate governance principles enter the "basic structure." Finally, we concur with Sen's aim to broaden the realm of social justice beyond what he calls the 'transcendental institutional perfectionism' of Rawls' theory. We maintain the contractarian approach to justice but introduce Sen's capability concept as an element of the constitutional and post-constitutional contract model of institutions with special reference to corporate governance. Accordingly, rights over primary goods and capabilities are (constitutionally) granted by the basic institutions of society, but many capabilities have to be turned into the functionings of many stakeholders through the operation of firms understood as post-constitutional institutional domains. The constitutional contract on the distribution of primary goods and capabilities should then shape the principles of corporate governance so that at post-constitutional level anyone may achieve her/his functionings in the corporate domain by exercising such capabilities. In the absence of such a condition, post-constitutional contracts would distort the process that descends from constitutional rights and capabilities toward social outcomes.

The hierarchical nature of the firm affects stakeholders' well-being. This is our main motivation in analysing the firm through the perspective of Sen's capability approach—a social justice theory for the evaluation of any institution, organization or policy aimed at providing well-beings. In order to work out the inherent relation between the capability approach and the economic analysis of the law, we show the strict link between capabilities and entitlements, which we call capabilities-as-entitlements, and investigate if and how corporate governance, i.e., the configuration of entitlements in a firm, enhances or diminishes capabilities of stakeholders. We underline the role that the public use of reason and a sufficientarian criterion play in mitigating conflicts among stakeholders, permitting the reach of a balance amongst all of them and the identification of the capabilities that allow stakeholders to exercise democratic citizenship in corporation. We build several indexes that are able to measure and compare capabilities developed within and between corporate governance regimes.

New institutional economics (NIE) studies institutions and how they emerge, operate, and evolve. They also include organizational arrangements, intended as modes of governing economic transactions. Universities offer an exciting ground for testing the role of different institutional arrangements (governance forms) in coordinating (academic) transactions. In a context of contractual incompleteness where production is characterized by a highly specialized nature and requires the cooperation among co-essential figures, we argue that shared governance models (versus models with more concentrated authority) foster idiosyncratic investments in human capital and promotes performance. From the evolutionary viewpoint, we explain why institutions based on shared governance have developed within universities. The normative question of how universities should be governed is a debated issue in the literature. Since the 1980s, the new public management paradigm provides a theoretical framework that suggests analyzing university like firms. It is based on the firms archetypical conception as top-down hierarchical organizations and as a descending sequence of principal-agent problems. We advance a different interpretation of the university-firm analogy leveraging on the NIE and its developments. To empirically analyze our hypothesis, we collected original data from Italian universities in 2015. We find that more shared decision-making processes are correlated with better research performance.