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Production externalities: internalization by voting

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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.

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Authors and Affiliations

  1. Department of Economics, Sciences Po, 27 rue Saint-Guillaume, 75007, Paris, France

    Hervé Crès

  2. Newcastle University Business School, 5 Barrack Road, Newcastle-upon-Tyne, NE1 4SE, UK

    Mich Tvede

Authors
  1. Hervé Crès
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  2. Mich Tvede
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Correspondence to Mich Tvede.

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We would like to thank three referees for valuable and constructive comments.

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Crès, H., Tvede, M. Production externalities: internalization by voting. Econ Theory 53, 403–424 (2013). https://doi.org/10.1007/s00199-012-0697-z

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  • DOI: https://doi.org/10.1007/s00199-012-0697-z

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