Club-in-the-Club: Reform under Unanimity

TY - UNPB

T1 - Club-in-the-Club

T2 - Reform under Unanimity

AU - Berglöf, Erik

AU - Burkart, Mike

AU - Friebel, Guido

AU - Paltseva, Elena

N1 - JEL classification: D2, D7, P4

PY - 2009

Y1 - 2009

N2 - In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. In the presence of externalities and an incomplete charter, the threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations.

AB - In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. In the presence of externalities and an incomplete charter, the threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations.

KW - Faculty of Social Sciences

KW - organisationer

KW - organizations

KW - club good

KW - voting rules

KW - EU integration

M3 - Working paper

BT - Club-in-the-Club

PB - Economic Policy Research Unit. Department of Economics, University of Copenhagen

ER -