Wednesday, January 14, 2009 - 12:30pm to Thursday, January 15, 2009 - 1:55pm
Location: 
Solarium

LAW & ECONOMICS WORKSHOP

presents


Yair Listokin
Yale Law School

The Pivotal Mechanism and Organizational Control


Wednesday, January 14, 2009
12:30 - 2:00
Solarium (room FA2), Falconer Hall
Faculty of Law, University of Toronto
84 Queen's Park

 

Organizations with multiple individuals typically make decisions by following the will of the majority of some subset of stakeholders that are entitled to vote.  This paper examines an alternative decision-making mechanism - the "pivotal" mechanism developed by 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.

 

A light lunch will be provided.

 

For more workshop information, please contact Nadia Gulezko at n.gulezko@utoronto.ca.