Club-in-the-club: reform under unanimity

Berglöf, Erik ORCID: 0000-0002-4325-3847, Burkart, Mike ORCID: 0000-0002-0954-4499, Friebel, Guido and Paltseva, Elena (2012) Club-in-the-club: reform under unanimity. Journal of Comparative Economics, 40 (3). pp. 492-507. ISSN 0147-5967

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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.

Item Type:	Article
Official URL:	https://www.journals.elsevier.com/journal-of-compa...
Additional Information:	© 2011 Association for Comparative Economic Studies
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D2 - Production and Organizations D - Microeconomics > D7 - Analysis of Collective Decision-Making P - Economic Systems > P4 - Other Economic Systems
Date Deposited:	22 Feb 2017 09:55
Last Modified:	14 Sep 2024 05:35
URI:	http://eprints.lse.ac.uk/id/eprint/69541

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