IDEAS home Printed from https://ideas.repec.org/p/hal/spmain/hal-01065579.html
   My bibliography  Save this paper

Portfolio Diversification and Internalization of Production Externalities through Majority Voting

Author

Listed:
  • Hervé Crès

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Mich Tvede

    (Department of Economics [Copenhagen] - Faculty of Social Sciences [Copenhagen] - UCPH - University of Copenhagen = Københavns Universitet)

Abstract

A general equilibrium model with uncertainty and production externalities is studied. In absence of markets for externalities, we look for governances and conditions under which majority voting among shareholders is likely to give rise to efficient internalization. We argue that the financial market clearing conditions endogenously set up, within the firms, social choice configurations where the (perfectly diversified) market portfolio, which gives the right incentives for economic efficiency, happens to be a good (and sometimes the best) candidate in the political process, i.e., a candidate with good stability properties with respect to the majority rule. The central and natural role played by a governance of stakeholders is underlined and benchmarked.

Suggested Citation

  • Hervé Crès & Mich Tvede, 2005. "Portfolio Diversification and Internalization of Production Externalities through Majority Voting," SciencePo Working papers Main hal-01065579, HAL.
    • Handle: RePEc:hal:spmain:hal-01065579
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01065579
    as

    Download full text from publisher

    File URL: https://sciencespo.hal.science/hal-01065579/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, vol. 47(3), pages 627-636, May.
    3. Hansen, Robert G. & Lott, John R., 1996. "Externalities and Corporate Objectives in a World with Diversified Shareholder/Consumers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(1), pages 43-68, March.
    4. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January.
    5. Hervé Crès & Mich Tvede, 2004. "The Drèze and Grossman-Hart criteria for production in incomplete markets: Voting foundations and compared political stability," Working Papers hal-00591676, HAL.
    6. Howard R. Bowen, 1943. "The Interpretation of Voting in the Allocation of Economic Resources," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(1), pages 27-48.
    7. Sadanand, Asha B & Williamson, John M, 1991. "Equilibrium in a Stock Market Economy with Shareholder Voting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 1-35, February.
    8. Simon Benninga & Eitan Muller, 1979. "Majority Choice and the Objective Function of the Firm under Uncertainty," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 670-682, Autumn.
    9. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-330, March.
    10. Kelsey, David & Milne, Frank, 1996. "The existence of equilibrium in incomplete markets and the objective function of the firm," Journal of Mathematical Economics, Elsevier, vol. 25(2), pages 229-245.
    11. Cass, David & Stiglitz, Joseph E., 1970. "The structure of investor preferences and asset returns, and separability in portfolio allocation: A contribution to the pure theory of mutual funds," Journal of Economic Theory, Elsevier, vol. 2(2), pages 122-160, June.
    12. Peter M. DeMarzo, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 713-734.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09iepsg269m is not listed on IDEAS
    2. Hervé Crès & M. Utku Ünver, 2010. "Ideology and Existence of 50%-Majority Equilibria in Multidimensional Spatial Voting Models," Journal of Theoretical Politics, , vol. 22(4), pages 431-444, October.
    3. repec:hal:spmain:info:hdl:2441/10277 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hervé Crès & Mich Tvede, 2005. "Portfolio Diversification and Internalization of Production Externalities through Majority Voting," Working Papers hal-00587205, HAL.
    2. Hervé Crès & Mich Tvede, 2005. "Portfolio Diversification and Internalization of Production Externalities through Majority Voting," SciencePo Working papers hal-01065579, HAL.
    3. repec:spo:wpecon:info:hdl:2441/10281 is not listed on IDEAS
    4. repec:hal:spmain:info:hdl:2441/10281 is not listed on IDEAS
    5. repec:hal:wpspec:info:hdl:2441/10281 is not listed on IDEAS
    6. Hervé Crès & Mich Tvede, 2013. "Production externalities: internalization by voting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(2), pages 403-424, June.
    7. Crès, Hervé & Tvede, Mich, 2009. "Production in incomplete markets: Expectations matter for political stability," Journal of Mathematical Economics, Elsevier, vol. 45(3-4), pages 212-222, March.
    8. CRES, Hervé & TVEDE, Mich, 2004. "The Dreze and Grossman-Hart criteria for production in incomplete markets: Voting foundations and compared political stability," HEC Research Papers Series 794, HEC Paris.
    9. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09ieq060086 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09ieq060086 is not listed on IDEAS
    11. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09ieq060086 is not listed on IDEAS
    12. repec:hal:spmain:info:hdl:2441/10267 is not listed on IDEAS
    13. Hervé Crès & Mich Tvede, 2011. "Production externalities: internalization by voting," SciencePo Working papers hal-00972983, HAL.
    14. Hervé Crès & Mich Tvede, 2011. "Production externalities: internalization by voting," SciencePo Working papers Main hal-00972983, HAL.
    15. Hervé Crès & Mich Tvede, 2009. "Production in incomplete markets: Expectations matter for political stability," SciencePo Working papers Main hal-01022731, HAL.
    16. Hervé Crès & Mich Tvede, 2009. "Production in incomplete markets: Expectations matter for political stability," SciencePo Working papers hal-01022731, HAL.
    17. Hervé Crès & Mich Tvede, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," Sciences Po publications 726/2001, Sciences Po.
    18. repec:spo:wpecon:info:hdl:2441/10284 is not listed on IDEAS
    19. repec:hal:wpspec:info:hdl:2441/10267 is not listed on IDEAS
    20. repec:hal:wpspec:info:hdl:2441/10284 is not listed on IDEAS
    21. Hervé Crès, 2000. "Majority Stable Production Equilibria: A Multivariate Mean Shareholders Theorem," Working Papers hal-01064883, HAL.
    22. Hervé Crès, 2000. "Majority Stable Production Equilibria: A Multivariate Mean Shareholders Theorem," SciencePo Working papers Main hal-01064883, HAL.
    23. repec:spo:wpecon:info:hdl:2441/10282 is not listed on IDEAS
    24. repec:hal:wpspec:info:hdl:2441/10282 is not listed on IDEAS
    25. repec:hal:spmain:info:hdl:2441/10284 is not listed on IDEAS
    26. repec:hal:spmain:info:hdl:2441/10282 is not listed on IDEAS
    27. repec:spo:wpecon:info:hdl:2441/10267 is not listed on IDEAS
    28. Hervé Crès & Mich Tvede, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," SciencePo Working papers Main hal-01065004, HAL.
    29. Hervé Crès, 2000. "Majority Stable Production Equilibria: A Multivariate Mean Shareholders Theorem," SciencePo Working papers hal-01064883, HAL.
    30. Hervé Crès & Mich Tvede, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," SciencePo Working papers hal-01065004, HAL.
    31. Mich Tvede & Hervé Crès, 2001. "Voting in Assemblies of shareholders and Incomplete Markets," SciencePo Working papers hal-01064884, HAL.
    32. repec:hal:spmain:info:hdl:2441/10283 is not listed on IDEAS
    33. Mich Tvede & Hervé Crés, 2005. "Voting in assemblies of shareholders and incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 887-906, November.
    34. Hervé Crès, 2006. "A Geometric Study of Shareholders’ Voting in Incomplete Markets: Multivariate Median and Mean Shareholder Theorems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 27(2), pages 377-406, October.
    35. repec:hal:wpspec:info:hdl:2441/10283 is not listed on IDEAS
    36. Mich Tvede & Hervé Crès, 2001. "Voting in Assemblies of shareholders and Incomplete Markets," SciencePo Working papers Main hal-01064884, HAL.
    37. repec:spo:wpecon:info:hdl:2441/10283 is not listed on IDEAS
    38. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09iepsg269m is not listed on IDEAS
    39. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:spmain:hal-01065579. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Contact - Sciences Po Departement of Economics (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.