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Production externalities: internalization by voting

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  • Hervé Crès
  • Mich Tvede

Abstract

We study internalization of production externalities in perfectly competitive markets where production plans are decided by majority voting. Since shareholders want firms to maximize dividends of portfolios rather than profits, they are interested in some internalization. Two governances, namely the shareholder governance (one share, one vote) and the stakeholder democracy (one stakeholder, one vote), are compared. We argue that perfect internalization is more likely to be the outcome of the stakeholder democracy than the shareholder governance. Copyright Springer-Verlag 2013

Suggested Citation

  • 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.
    • Handle: RePEc:spr:joecth:v:53:y:2013:i:2:p:403-424
    DOI: 10.1007/s00199-012-0697-z
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    Cited by:

    1. Elena L. Mercato & Vincenzo Platino, 2017. "On the regularity of smooth production economies with externalities: competitive equilibrium à la Nash," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(1), pages 287-307, January.
    2. Hervé Crès & Mich Tvede, 2023. "Corporate self-regulation of imperfect competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1181-1205, May.

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    More about this item

    Keywords

    General equilibrium; Majority voting; Production externalities; Shareholder governance versus stakeholder democracy; Social choice; D21; D51; D72; G39; L21;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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