The Option to Wait in Collective Decisions
38 Pages Posted: 2 Jan 2008
Date Written: December 27, 2007
We analyze a model in which voters learn over time their preferences regarding an irreversible social decision. Voters can either implement the project in the first period, or they can postpone the decision to the second period.
We analyze the effects of different majority rules. We show that individual first period voting behavior may become "less conservative"' under super majority rules, and that it is even possible that a project is implemented in the first period under a super majority rule that would not be implemented under simple majority rule.
From an ex-ante perspective, welfare is higher with a super majority rule rather than a simple majority rule. We also show that, in contrast to individual investment problems, society might be better off if the option to postpone the decision did not exist.
Keywords: Supermajority rules, learning, investment, option value
JEL Classification: D72, D81
Suggested Citation: Suggested Citation