# Voting in assemblies of shareholders and incomplete markets

## Author Info

• Mich Tvede

()

• Hervé Crés

()

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## Abstract

An economy with two dates is considered, one state at the first date and a finite number of states at the last date. Shareholders determine production plans by voting - one share, one vote - and at $\rho$ -majority stable stock market equilibria, alternative production plans are supported by at most $\rho \times 100$ percent of the shareholders. It is shown that a $\rho$ -majority stable stock market equilibrium exists if $$\rho\ \geq\ \dfrac{S-J}{S-J + 1},$$ where S is the number of states at the last date and J is the number of firms. Moreover, an example shows that $\rho$ -majority stable stock market equilibria need not exist for smaller $\rho$ ’s. Copyright Springer-Verlag Berlin/Heidelberg 2005

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## Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 26 (2005)
Issue (Month): 4 (November)
Pages: 887-906

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Handle: RePEc:spr:joecth:v:26:y:2005:i:4:p:887-906

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## Related research

Keywords: General equilibrium; Incomplete markets; Production; Shareholders’ voting; Super majority.;

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Find related papers by JEL classification:
• D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
• D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
• D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
• G39 - Financial Economics - - Corporate Finance and Governance - - - Other

## References

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1. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, vol. 47(3), pages 627-36, May.
2. CRES, Herve & TVEDE, Mich, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," Les Cahiers de Recherche 726, HEC Paris.
3. Ferejohn, John A. & Grether, David M., 1974. "On a class of rational social decision procedures," Journal of Economic Theory, Elsevier, vol. 8(4), pages 471-482, August.
4. Grossman, Sanford J & Hart, Oliver D, 1979. "A Theory of Competitive Equilibrium in Stock Market Economies," Econometrica, Econometric Society, vol. 47(2), pages 293-329, March.
5. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January.
6. Shafer, Wayne & Sonnenschein, Hugo, 1975. "Equilibrium in abstract economies without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(3), pages 345-348, December.
7. DeMarzo, Peter M, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 713-34, July.
8. Yves Balasko & Hervé Crès, 1995. "The Probability of Condorcet Cycles and Super Majority Rules," Research Papers by the Department of Economics, University of Geneva 95.01, Département des Sciences Économiques, Université de Genève.
9. Caplin, Andrew S & Nalebuff, Barry J, 1988. "On 64%-Majority Rule," Econometrica, Econometric Society, vol. 56(4), pages 787-814, July.
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## Citations

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Cited by:
1. Mich Tvede & Hervé Crès, 2011. "Production externalities: internalization by voting," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
2. Volker Britz & P. Herings & Arkadi Predtetchinski, 2013. "A bargaining theory of the firm," Economic Theory, Springer, vol. 54(1), pages 45-75, September.
3. Hnatkovska, Viktoria, 2010. "Home bias and high turnover: Dynamic portfolio choice with incomplete markets," Journal of International Economics, Elsevier, vol. 80(1), pages 113-128, January.
4. Hervé Crès & Mich Tvede, 2009. "Production in Incomplete Markets: Expectations Matter for Political Stability," Discussion Papers 09-01, University of Copenhagen. Department of Economics.
5. Guido Ruta & Piero Gottardi, 2009. "Equilibrium corporate finance," 2009 Meeting Papers 149, Society for Economic Dynamics.
6. Mich Tvede & Hervé Crès, 2005. "On the political economy of adverse selection," Sciences Po publications 05-14, Sciences Po.
7. Tirelli, Mario, 2006. "The evaluation of public investments under uncertainty," Research in Economics, Elsevier, vol. 60(4), pages 188-198, December.
8. Mich Tvede & Hervé Crès, 2009. "Production in incomplete markets: Expectations matter for political stability," Sciences Po publications info:hdl:2441/10267, Sciences Po.

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