Voting on Public Goods: Citizens vs. Shareholders

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See all articles by Robin Döttling

Robin Döttling

Erasmus University Rotterdam (EUR); Rotterdam School of Management, Erasmus University

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI); Center for Economic and Policy Research

Nadya Malenko

Boston College, Carroll School of Management; National Bureau of Economic Research (NBER); Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Magdalena Rola-janicka

Imperial College Business School; Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR)

Date Written: June 06, 2024

Abstract

We study the interplay between a "one person-one vote" political system and a "one share-one vote" corporate governance regime. The political system sets Pigouvian subsidies, while corporate governance determines firm-specific public good investments. Our analysis highlights a two-way feedback effect. In a frictionless economy, shareholder democracy is irrelevant: the political system fully offsets any effects of shareholder influence. With frictions in public policy provision, pro-social corporations fill the void of a dysfunctional regulatory system and increase the provision of public goods-demonstrating the benefit of shareholder democracy. Nevertheless, shareholder democracy can hurt a typical citizen because of the representation problem: it favors the preferences of the wealthy. If shareholders have extreme views, there can be a backlash against ESG initiatives, and the political system may undo or tax corporate social responsibility measures. Advancements in financial technologies that increase investor diversification or enable pass-through voting have important implications for these trade-offs of shareholder democracy.

Keywords: shareholder democracy, political democracy, socially responsible investing, public good, Pigouvian subsidy, carbon tax, ESG, political backlash, wealth inequality, pass-through voting JEL classifications: D62

Suggested Citation

Döttling, Robin and Levit, Doron and Malenko, Nadya and Rola-janicka, Magdalena, Voting on Public Goods: Citizens vs. Shareholders (June 06, 2024). Available at SSRN: https://ssrn.com/abstract=

Robin Döttling

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Doron Levit

University of Washington, Foster School of Business ( email )

434 Paccar Hall, 4273 E Stevens Way NE
Seattle, WA 98195
United States

HOME PAGE: http://https://sites.google.com/view/doronlevit

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Center for Economic and Policy Research ( email )

Nadya Malenko (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Magdalena Rola-janicka

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
07919826557 (Phone)

Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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