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Club-in-the-club: reform under unanimity

Author

Listed:
  • Berglöf, Erik
  • Burkart, Mike
  • Friebel, Guido
  • Paltseva, Elena

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. 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.

Suggested Citation

  • Berglöf, Erik & Burkart, Mike & Friebel, Guido & Paltseva, Elena, 2012. "Club-in-the-club: reform under unanimity," LSE Research Online Documents on Economics 69541, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:69541
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    File URL: http://eprints.lse.ac.uk/69541/
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Schönfelder, Nina & Wagner, Helmut, 2015. "The impact of European integration on institutional development," MPRA Paper 63392, University Library of Munich, Germany.
    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.
    4. Erik Berglof & Mike Burkart & Guido Friebel & Elena Paltseva, 2008. "Widening and Deepening: Reforming the European Union," American Economic Review, American Economic Association, vol. 98(2), pages 133-137, May.
    5. Jain, Sanjay & Majumdar, Sumon, 2016. "State capacity, redistributive compensation and the political economy of economic policy reform," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 462-473.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • P4 - Economic Systems - - Other Economic Systems

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