TY - UNPB

T1 - Production in Incomplete Markets

T2 - Expectations Matter for Political Stability

AU - Crès, Hervé

AU - Tvede, Mich

N1 - JEL classification: D21, D52, D71, D72

PY - 2009

Y1 - 2009

N2 - AbstractIn the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

AB - AbstractIn the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

KW - Faculty of Social Sciences

KW - super majority voting

KW - political (in)stability

KW - self-fulfilling expectations

M3 - Working paper

BT - Production in Incomplete Markets

PB - Department of Economics, University of Copenhagen

ER -