The option to wait in collective decisions and optimal majority rules

Matthias Messner, Mattias K. Polborn

Research output: Contribution to journalArticlepeer-review

Abstract

We consider a model in which voters over time receive more information about their preferences concerning 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. Individual first period voting behavior may become "less conservative" under supermajority rules, and it is even possible that a project is implemented in the first period under a supermajority rule that would not be implemented under simple majority rule. We characterize the optimal majority rule, which is a supermajority rule. In contrast to individual investment problems, society may be better off if the option to postpone the decision did not exist. These results are qualitatively robust to natural generalizations of our model.

Original languageEnglish (US)
Pages (from-to)524-540
Number of pages17
JournalJournal of Public Economics
Volume96
Issue number5-6
DOIs
StatePublished - Jun 1 2012

Keywords

  • Information
  • Investment
  • Option value
  • Supermajority rules

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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