Abstract

http://ssrn.com/abstract=2264245
 


 



Quadratic Voting as Efficient Corporate Governance


Eric A. Posner


University of Chicago - Law School

E. Glen Weyl


Microsoft Research New England; University of Chicago

October 4, 2013

University of Chicago Law Review, Forthcoming
University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 643

Abstract:     
Shareholder voting is a weak and much-criticized mechanism for controlling managerial opportunism. Among other problems, shareholders are often too uninformed to vote wisely, and majority and supermajority rule permits large shareholders to exploit small shareholders. We propose a new voting system called Quadratic Voting (QV), according to which shareholders are not given voting rights but may purchase votes, with the price of votes being a quadratic function of the number of votes purchased. QV ensures that voting outcomes are efficient under reasonable conditions. We argue that corporations should implement QV, or a simple approximation called square-root voting, and that the law permits them to do so. Certain legal protections for shareholders, such as the appraisal remedy and poison pill, are unnecessary if QV is implemented.

Number of Pages in PDF File: 27

Keywords: shareholder democracy, vote buying, corporate governance, minority shareholders

JEL Classification: D71, G34, K22, D61

Accepted Paper Series


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Date posted: May 13, 2013 ; Last revised: October 5, 2013

Suggested Citation

Posner, Eric A. and Weyl, E. Glen, Quadratic Voting as Efficient Corporate Governance (October 4, 2013). University of Chicago Law Review, Forthcoming; University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 643. Available at SSRN: http://ssrn.com/abstract=2264245

Contact Information

Eric A. Posner
University of Chicago - Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
773-702-0425 (Phone)
773-702-0730 (Fax)
HOME PAGE: http://www.law.uchicago.edu/faculty/posner-e/
Eric Glen Weyl (Contact Author)
Microsoft Research New England ( email )
One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States
(857) 998-4513 (Phone)
HOME PAGE: http://www.glenweyl.com
University of Chicago ( email )
1126 East 59th Street
Chicago, IL 60637
United States
(773) 702-4862 (Phone)
(773) 702-8490 (Fax)
HOME PAGE: http://www.glenweyl.com
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