Production externalities: internalization by voting

Hervé Crès (1) , Mich Tvede (2)

1 ECON - Département d'économie (Sciences Po)
2 Department of Economics [Copenhagen]

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.

Keywords: general equilibrium; majority voting; production externalities; shareholder governance vs. stakeholder democracy; social choice

Domains: Economics and Finance

Hervé Crès, Mich Tvede. Production externalities: internalization by voting. 2011. ⟨hal-00972983⟩