Production externalities: Internalization by voting

Hervé Crès, Mich Tvede

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)403-424
Number of pages22
JournalEconomic Theory
Volume53
Issue number2
DOIs
StatePublished - Jun 2013

Keywords

  • General equilibrium
  • Majority voting
  • Production externalities
  • Shareholder governance versus stakeholder democracy
  • Social choice

ASJC Scopus subject areas

  • Economics and Econometrics

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