The Vickrey-Clarke-Groves “Pivotal Mechanism” as an Alternative to Voting for Organizational Control
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Yair Listokin
Abstract
Organizations with multiple stakeholders typically make decisions by following the will of the majority of some subset of stakeholders that are entitled to vote. This Article examines an alternative decisionmaking mechanism - the “pivotal” mechanism developed by Vickrey, Groves and Clarke. Unlike voting, the pivotal mechanism produces efficient outcomes in the presence of heterogeneous voter preferences. Moreover, the mechanism allows control rights to be allocated more widely, reducing the costs of opportunism when a controlling class of stakeholders has interests adverse to another class. These benefits come with costs. The pivotal mechanism’s efficiency diminishes in the presence of collusion between voters and requires the creation of “pools” that disperse revenues created by the mechanism. The mechanism is therefore most attractive when the costs of heterogeneity are large and the risks of collusion are small. As a result, I propose the development of a legal basis for the pivotal mechanism as a menu option for organizational decision-making.
© 2015 by Walter de Gruyter Berlin/Boston
Articles in the same Issue
- Frontmatter
- Contents
- Introduction
- The Corporate Governance Movement, Banks, and the Financial Crisis
- A State of Inaction: Regulatory Preferences, Rent, and Income Inequality
- Officers’ and Directors’ Liability Under German Law — A Potemkin Village
- Dividend Policy with Controlling Shareholders
- The Impact of the Financial Crisis on Nonfinancial Firms: The Case of Brazilian Corporations and the “Double Circularity” Problem in Transnational Securities Litigation
- Corporate Fiduciary Duties and Prudential Regulation of Financial Institutions
- Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive
- Brave New World: A Proposal for Institutional Investors
- The Vickrey-Clarke-Groves “Pivotal Mechanism” as an Alternative to Voting for Organizational Control
- Self-Selection and Heterogeneity in Firms’ Choice of Corporate Law
Articles in the same Issue
- Frontmatter
- Contents
- Introduction
- The Corporate Governance Movement, Banks, and the Financial Crisis
- A State of Inaction: Regulatory Preferences, Rent, and Income Inequality
- Officers’ and Directors’ Liability Under German Law — A Potemkin Village
- Dividend Policy with Controlling Shareholders
- The Impact of the Financial Crisis on Nonfinancial Firms: The Case of Brazilian Corporations and the “Double Circularity” Problem in Transnational Securities Litigation
- Corporate Fiduciary Duties and Prudential Regulation of Financial Institutions
- Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive
- Brave New World: A Proposal for Institutional Investors
- The Vickrey-Clarke-Groves “Pivotal Mechanism” as an Alternative to Voting for Organizational Control
- Self-Selection and Heterogeneity in Firms’ Choice of Corporate Law
