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Freezeout, compensation rules, and voting equilibria

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  • Christian At

    () (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté)

  • Sylvain Béal

    (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté)

  • Pierre-Henri Morand

    () (LBNC - Laboratoire Biens, Normes, Contrats - UAPV - Université d'Avignon et des Pays de Vaucluse)

Abstract

A single proposer has the opportunity to generate a surplus by buying out the assets of a group of individuals. These individuals vote to accept or reject the monetary offer made to them by the proposer, who needs the agreement of a qualified majority. The voters rejecting the offer while the qualified majority is met are frozen out but they can claim compensation in exchange for their asset. This article analyses how compensation rules influence both the votes and the offer made by the proposer. The existence of a symmetric subgame perfect Nash equilibrium is ensured, and multiple equilibrium outcomes with the same offer can arise when compensation depends on the probability of acceptance by the voters. We show that increasing the offer does not always increase the probability of acceptance, in sharp contrast to many similar models. We identify the equilibrium offer when compensation does not depend on the proposal. Increasing compensation always reduces the expected social surplus and the proposer's expected profit, but does not always benefit the voters. Reinforcing the qualified majority always increases the proposer's expected profit, and can lower both the expected social surplus and the voters’ expected utility.

Suggested Citation

  • Christian At & Sylvain Béal & Pierre-Henri Morand, 2015. "Freezeout, compensation rules, and voting equilibria," Post-Print hal-01313554, HAL.
  • Handle: RePEc:hal:journl:hal-01313554
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01313554
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    References listed on IDEAS

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    Cited by:

    1. Francis, Bill & Hasan, Iftekhar & Mani, Sureshbabu & Ye, Pengfei, 2016. "Relative peer quality and firm performance," Journal of Financial Economics, Elsevier, vol. 122(1), pages 196-219.
    2. World Bank, 2017. "Brazil’s INDC Restoration and Reforestation Target," World Bank Other Operational Studies 28588, The World Bank.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • K2 - Law and Economics - - Regulation and Business Law

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