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Club-in-the-Club: Reform under Unanimity

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Author Info

  • Erik Berglöf

    (European Bank for Reconstruction and Development)

  • Mike Burkart

    (Stockholm School of Economics)

  • Guido Friebel

    (Goethe-Universität Frankfurt)

  • Elena Paltseva

    (Department of Economics, University of Copenhagen)

Abstract

In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. In the presence of externalities and an incomplete charter, the threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations.

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File URL: http://www.econ.ku.dk/eprn_epru/Workings_Papers/wp-09-07.pdf
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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2009-07.

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Length: 37 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:kud:epruwp:09-07

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Keywords: organizations; club good; voting rules; EU integration;

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References

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  21. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
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Citations

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Cited by:
  1. Berglöf, Erik & Burkart, Mike & Friebel, Guido & Paltseva, Elena, 2008. "Widening and Deepening: Reforming the European Union," CEPR Discussion Papers 6672, C.E.P.R. Discussion Papers.
  2. Berglöf, Erik & Burkart, Mike & Friebel, Guido & Paltseva, Elena, 2012. "Club-in-the-club: Reform under unanimity," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 492-507.
  3. Bard Harstad, 2006. "Flexible Integration," Discussion Papers 1428, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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