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Production externalities: internalization by voting

Author

Listed:
  • Mich Tvede

    (Institute of Economics)

  • Hervé Crès

    (Département d'économie)

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.

Suggested Citation

  • Mich Tvede & Hervé Crès, 2011. "Production externalities: internalization by voting," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09ieq060086
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    References listed on IDEAS

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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.

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    More about this item

    Keywords

    general equilibrium; majority voting; production externalities; shareholder governance vs. stakeholder democracy; social choice;

    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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