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on Collective Decision-Making |
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Issue of 2006‒06‒03
seven papers chosen by |
| By: | Ronald Gilson (Stanford Law School); Alan Schwartz (Yale Law School) |
| Abstract: | Under standard accounts of corporate governance, capital markets play a significant role in monitoring management performance and, where appropriate, replacing management whose performance does not measure up. While the concept of a market for corporate control was once controversial, now even the American Law Institute acknowledges that "transactions in control and tender offers are mechanisms through which market review of the effectiveness of management's delegated discretion can operate. Recent case law in Delaware, however, appears to have altered dramatically the mechanisms through which the market for corporate control must operate. In particular, the interaction of the poison pill and the Delaware Supreme Court's development of the legal standard governing defensive tactics in response to tender offers have resulted in a decided, but as yet unexplained, preference for control changes mediated by means of an election rather than by a market. In this paper, we begin the evaluation of the preference for elections over markets that the Delaware Supreme Court has not yet attempted. We apply to this effort both doctrinal and insights derived from an interesting but complex formal literature that has developed to understand how voting structures work in political contests and jury deliberations. Since these contexts differ substantially from transfers of corporate control, our analysis raises a question of fit: are voting models suitable for analyzing the question asked here? In our view, the models do illuminate the takeover institution, but if this view is ultimately rejected, then we will have eliminated what at least superficially appears to be a useful set of tools.Part 1 provides a very brief account of the doctrinal development that has given us the current bias for elections, focusing on the last step in the process: the Delaware Supreme Court's decision in Unitrin, Inc. v. American General Corp. Part 2 then argues that economic efficiency, to be made precise in this context below, is the appropriate normative criterion for directing the choice between markets and elections as mechanisms for effecting a change in control that is resisted by management. Parts 3 and 4 next develop two models which show that elections can perform badly in proxy contests in which the principal issue is whether the target company should be sold or not. The first model assumes that shareholder voters are well informed about the economic variables of interest and the second supposes uncertainty about these variables.Market sales apparently lack the defects that these models show can affect elections. Current regulation, which facilitates competing bids, and current takeover technologies, which permit making them, would eliminate much of the inefficiency in takeover bidding that prior models have identified if bidders could make proposals directly to target shareholders. Then the target would be an auction seller. A standard result in auction theory is that if the seller chooses a revenue maximizing auction form it is a dominant strategy for bidders -- here potential acquirers -- to big their true valuations. The dominant strategy for a maximizing seller then is to accept the winning bid. Therefore, target shareholders would not be in a strategic situation in an auction world. As a consequence, we focus on the possible inefficiencies arising from a judicial preference for elections (in which it is optimal for shareholders to act strategically) over markets as a takeover mechanism. In Part 5, we return to doctrine to show how Unitrin's preference for elections over markets may be eliminated without requiring the Delaware Supreme Court to confess error. We also suggest that, for jurisdictions with courts less influential than those in Delaware, a statutory change to permit more sales of control would be best. |
| URL: | http://d.repec.org/n?u=RePEc:bep:yaloln:yale_lepp-1022&r=cdm |
| By: | Curtis R. Taylor; Huseyin Yildirim |
| Date: | 2006–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000060&r=cdm |
| By: | Taeko Endo |
| Abstract: | In this paper, we show that the dynamics of a parliament seat share using an adoptive process modeled by urn scheme. In particular, we clarify the condition under which one dominant party or co-existence arises, when voters recognize the political effectiveness as important. One of the important factors for voters to decide their voting is how a political party's proposal is close to their ideal, which reflects their religion, social class, age and so on. There exists another important factor to choose a party. In the literature it is often supposed that the winning party has the power to implement any proposal with probability 1. However, voters have room to consider the likelihood that a party will implement its proposal, i.e., the political effectiveness. Some of voters may be more in favor of the policy that was announced by the defeated party; others, on the contrary, may be in favor of the winning party's proposal. The actions taken by the government are influenced by voters. The influence of voters in favor of a proposal will become bigger if the proportion of seats obtained by the corresponding party. Clearly a party winning 51% of the seats will have more difficulty to carry out its proposal than one winning 80% of the seats. As show in Duverger(1967), voters for small parties will see that their vote is being `wasted' and they will switch to supporting a major party. We consider the case where voters pay attention to two points to choose a party; the closeness between a party's ideology and own ideal, and the political effectiveness. Here, we consider the simple society where there are two parties, say, X and Y, and three type voters, say, x, y, and z. Voter x receives positive benefit from X and negative one from Y. She always votes for party X tough X has any low seat share. Conversely, voter y obtains negative benefit from X and positive one from Y. He votes for party Y irrespective of the seat share of Y. Voter z gets the same benefits from both parties. Party X and Y are indifferent for voter z. Voter z votes for a party with higher seat share. Voter x and y count the closeness to a party strongly and they ignore the political effectiveness. Voter x has the low critical seat share to vote for party X and voter y has the high critical seat share to vote for X. Voter z pays attention to the political effectiveness. He has the moderate critical seat share to vote for party X. We regard a voter's critical seat share as a voter's preference. For purposes of comparison we consider two shapes of distribution of voters' preferences, bimodal and single-peaked. If voters' preferences are distributed as bimodal, each party has strong supporters who always vote for the support party and the proportion of voters who care the political effectiveness as important is small. As each party has strong supports potentially even if it leaves what initial state, in progress of time, two seat shares become equivalent, i.e., the long term co-existence is realized in the equilibrium. Conversely, if voters' preferences are distributed as single-peaked, most voters are interested in the political effectiveness. Then, a party with higher seat share is more attractive for voters and it gains an even higher seat share. After all, a party with a high initial seat share comes into power, i.e., the lock-in into one of political party is realized. The dynamics treated in this paper is the generalized urn process discussed in Hill et al. (1980), Arthur et al. (1983), and Dosi et al. (1994). As Dosi et al. (1994) mentioned, by specifying the function which characterizes an agent's behavior, it is possible to analyze the stochastic evolution of the share. We define the voters' behavioral patterns and demonstrate how the global forces ruling the dynamics of whole populations can be derived from the individual behavior of voters |
| Keywords: | Political effectiveness, Voter's preference, Urn process |
| JEL: | D72 |
| Date: | 2004–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecm:feam04:700&r=cdm |
| By: | Oliver Gürtler (Department of Economics, BWL II, University of Bonn, Adenauer-allee 24-42, D-53113 Bonn, Germany. Tel.:+49-228-739214, Fax:+49-228-739210 E-mail:oliver.guertler@uni-bonn.de); Christian Grund (Department of Economics and Business RWTH Aachen University Templergraben 59 D-52056 Aachen Germany Tel.:+49-241-8096381 christian.grund@wiwi.rwth-aachen.de) |
| Abstract: | In economic approaches it is often argued that reputation considerations influence the behavior of individuals or firms and that reputation influences the outcome of markets. Empirical evidence is rare though. In this contribution we argue that a positive reputation of sellers should have an effect on selling prices. Analyzing auctions of popular DVDs at eBay we, indeed, find support for this hypothesis. Secondary, we unmask the myth that it is promising for eBay sellers to let their auction end at the evening, when many potential buyers may be online. |
| Keywords: | Reputation, eBay feedback system, auction |
| JEL: | D44 D82 K12 L81 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:114&r=cdm |
| By: | Andrew Leigh |
| Abstract: | What impact do income and other demographic factors have on a voter’s partisan choice? Using post-election surveys of 14,000 voters in ten Australian elections between 1966 and 2001, I explore the impact that individual, local and national factors have on voters’ decisions. In these ten elections, the poor, foreign-born, younger voters, voters born since 1950, men, and those who are unmarried are more likely to be left-wing. Over the past 35 years, the partisan gap between men and women has closed, but the partisan gap has widened on three dimensions: between young and old; between rich and poor; and between native-born and foreign-born. At a neighbourhood level, I find that, controlling for a respondent’s own characteristics, and instrumenting for neighbourhood characteristics, voters who live in richer neighbourhoods are more likely to be right-wing, while those in more ethnically diverse or unequal neighbourhoods are more likely to be left-wing. Controlling for incumbency, macroeconomic factors do not seem to affect partisan preferences – Australian voters apparently regard both major parties as equally capable of governing in booms and busts. |
| Keywords: | elections, voting, partisanship, income, inequality, neighbourhood effects |
| JEL: | D31 D72 E24 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:489&r=cdm |
| By: | Mathieu Martin (THEMA - CNRS); Vincent Merlin (CREM – CNRS) |
| Abstract: | This paper deals with the non-emptiness of the stability set for any proper voting game.We present an upper bound on the number of alternatives which guarantees the non emptiness of this solution concept. We show that this bound is greater than or equal to the one given by Le Breton and Salles [6] for quota games. |
| Keywords: | voting game, core, stability set |
| JEL: | C7 D7 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:200609&r=cdm |
| By: | Dominique Lepelley (CERESUR – University of la Reunion); Ahmed Louichi (CREM – CNRS); Hatem Smaoui (CREM – CNRS) |
| Abstract: | In voting theory, analyzing how frequent is an event (e.g. a voting paradox) is, under some specific but widely used assumptions, equivalent to computing the exact number of integer solutions in a system of linear constraints. Recently, some algorithms for computing this number have been proposed in social choice literature by Huang and Chua [17] and by Gehrlein ([12, 14]). The purpose of this paper is threefold. Firstly, we want to do justice to Eug`ene Ehrhart, who, more than forty years ago, discovered the theoretical foundations of the above mentioned algorithms. Secondly, we present some efficient algorithms that have been recently developed by computer scientists, independently from voting theorists. Thirdly, we illustrate the use of these algorithms by providing some original results in voting theory. |
| Keywords: | voting rules, manipulability, polytopes, lattice points, algorithms. |
| JEL: | D70 D71 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:200610&r=cdm |