Brexit: Dynamic Voting with an Irreversible Option

Benny Moldovanu () and Frank Rosar

No 14101, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze Brexit-like decisions in a polarized society. An electorate decides repeatedly be-tween a reversible alternative (REMAIN) and an irreversible alternative (LEAVE). We comparestrengths and weaknesses of several mechanisms that can be used in reality. Voting by super-majority dominates voting by simple majority. Decisions by simple majority and by a toosmall supermajority can perform very poorly under circumstances where it is socially optimalto never LEAVE, as they can exhibit equilibria where LEAVE is chosen very quickly. Mechanisms where LEAVE requires (super)majorities in two consecutive periods avoid this problemwithout relying on fine-tuning, but can lead to inefficient delays. If a final decision for eitheralternative requires winning by a certain margin, and if a new vote is triggered otherwise, bothproblems, choosing LEAVE too easily and inefficient delays, can oftenbe avoided.

Keywords: Dynamic voting; Irreversible option; Option value; Supermajority rules (search for similar items in EconPapers)
JEL-codes: C72 D72 D82 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-cdm, nep-des, nep-mic, nep-ore and nep-pol
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