Freezeout, Compensation Rules and Voting Equilibria
AbstractA single proposer has the opportunity to generate a surplus by taking the assets of a group of individuals. These individuals are called upon to vote for accepting or rejecting the monetary offer made to them by the proposer, who needs the agreement of a qualified majority. The voters who rejected the offer while the qualified majority is met are frozen out but they can claim a compensation in exchange for their asset. This article analyses how compensation rules influence both the votes and the offer made by the proposer. We find that unanimity rule or compensation equals to the proposal or voters' initial wealth maximize the expected social surplus that entirely accrues to the proposer. We show that increasing the offer does not always increase the probability of acceptance, in sharp contrast to many close models. We identify the optimal offer when the compensation does not depend on the proposal. Increasing the compensation always reduces the expected social surplus and the expected profit of the proposer, but does not always benefit to the voters. Reinforcing the qualified majority always increases the expected profit of the proposer, and can decrease both the expected social surplus and the expected utility of the voters. When the compensation is based on the proposal we find that the success or the failure of the proposition depends crucially of the compensation's shape.
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Bibliographic InfoPaper provided by CRESE in its series Working Papers with number 2013-04.
Length: 16 pages
Date of creation: May 2013
Date of revision:
Voting games; Compensations; Fairness; Freezeout; Regulatory takings; Debt restructuring;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- K2 - Law and Economics - - Regulation and Business Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-24 (All new papers)
- NEP-CDM-2013-05-24 (Collective Decision-Making)
- NEP-EXP-2013-05-24 (Experimental Economics)
- NEP-GTH-2013-05-24 (Game Theory)
- NEP-MIC-2013-05-24 (Microeconomics)
- NEP-POL-2013-05-24 (Positive Political Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yakov Amihud & Marcel Kahan & Rangarajan K. Sundaram, 2004. "The Foundations of Freezeout Laws in Takeovers," Journal of Finance, American Finance Association, vol. 59(3), pages 1325-1344, 06.
- Mark Bagnoli, Barton L. Lipman, 1988. "Successful Takeovers without Exclusion," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 89-110.
- Miceli,Thomas J., 2011.
"The Economic Theory of Eminent Domain,"
Cambridge University Press, number 9780521182973, November.
- Holmstrom, Bengt & Nalebuff, Barry, 1992. "To the Raider Goes the Surplus? A Reexamination of the Free-Rider Problem," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 37-62, Spring.
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