Controlling Strategic Voting: Property Rule or Liability Rule?

65 Pages Posted: 1 Sep 2013

See all articles by Zohar Goshen

Zohar Goshen

Columbia Law School; European Corporate Governance Institute (ECGI); Ono Academic College Faculty of Law

Date Written: 1997

Abstract

Strategic voting — situations where voters place their votes according to their assessment of how other voters will behave rather than according to their actual preference — results in distorted decision-making. Strategic voting can cause the company to lose desired transactions and can also be used to coerce voters into accepting alternatives they would have otherwise rejected. An analysis of the various types of strategic voting situations which arise in corporate law demonstrates the author’s argument that strategic voting is inherent in the voting mechanism, regardless of the type of group involved or of the decision being made. Maintaining a free and unrestricted voting environment is imperative in order to maximize the voting system's potential as a tool for expressing the true "group preference," which is a measure of transaction efficiency and serves to better the group's position. To achieve this goal, the author proposes a combined solution: first, the adoption of a simple majority rule in all group votes, which will significantly limit the effect of holdouts; second, the elimination of coerced voting by prohibiting individuals from acting contrary to the majority decision in cases where such actions might adversely affect the group. Requiring the entire group to adopt a unified course of action will eliminate the free rider problem, the prisoner's dilemma problem, and the coordination problem.

Keywords: Strategic Voting, Conflict of Interest, Property Rule, Liability Rule, Corporate Vote, Vote Buying, Prisoner's Dilemma, Coordination problem, Free Riding, Collective Action problem, Coercive Voting, Holdout Problem, Takeovers, Reorganization of Voting Rights

JEL Classification: G34, G38, K22

Suggested Citation

Goshen, Zohar, Controlling Strategic Voting: Property Rule or Liability Rule? (1997). Southern California Law Review, Vol. 70, 741, 1997, Available at SSRN: https://ssrn.com/abstract=2318646

Zohar Goshen (Contact Author)

Columbia Law School ( email )

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Ono Academic College Faculty of Law

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