In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
09-01.
Length: 20 pages Date of creation: Jan 2009 Date of revision: Handle: RePEc:kud:kuiedp:0901
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