Quadratic Voting as Efficient Corporate Governance

27 Pages Posted: 13 May 2013 Last revised: 5 Oct 2013

See all articles by Eric A. Posner

Eric A. Posner

University of Chicago - Law School

E. Glen Weyl

Microsoft Research New York City; Princeton University - Julis Rabinowitz Center for Public Policy and Finance

Date Written: October 4, 2013

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.

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

JEL Classification: D71, G34, K22, D61

Suggested Citation

Posner, Eric A. and Weyl, Eric 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: https://ssrn.com/abstract=2264245

Eric A. Posner

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
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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 York City ( email )

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8579984513 (Phone)

HOME PAGE: http://www.glenweyl.com

Princeton University - Julis Rabinowitz Center for Public Policy and Finance ( email )

Princeton University
Princeton, NJ 08544-1021
United States

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