Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent

Hervé Crès and Mich Tvede

No 726, HEC Research Papers Series from HEC Paris

Abstract: This article provides a study of corporate control in a general equilibrium framework for production economies. When markets are incomplete, trading assets does not allow agents to fully resolve their conflict of interest: at the market equilibrium, shareholders disagree on the way to evaluate production plans which ly outside the market span, and the objective function of the firm is not well defined. Two ways of resolving these conflicts are compared here. The first one (see, e.g., Dreze 1974 and Grossman & Hart 1979) consists in allowing sidepayments between shareholders. The second one (see, e.g., Dreze 1985 and DeMarzo 1993) relies on majority voting in the assembly of shareholders; a stable production plan is one which cannot be overruled by a majority of shareholders. Since voting occurs in a multi-dimensional setup super majority rules are needed to ensure existence of such "political" equilibria. The most interesting equilibria are those which are stable with respect to the super majority rule with smallest rate. The present paper provides a framework where these two approaches yield the same equilibria.

Keywords: incomplete markets; shareholders' voting; sidepayments (search for similar items in EconPapers)
JEL-codes: D21 D52 D71 G39 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2001-03-01
New Economics Papers: this item is included in nep-cdm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent (2001)
Working Paper: Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:0726

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