Theoretical Inquiries in Law
Editor-in-Chief: Klement, Alon
CiteScore 2017: 0.49
SCImago Journal Rank (SJR) 2017: 0.345
Source Normalized Impact per Paper (SNIP) 2017: 0.727
The Vickrey-Clarke-Groves “Pivotal Mechanism” as an Alternative to Voting for Organizational Control
- Professor of Law, Yale Law School. This Article benefited from extremely helpful comments by Ian Ayres, Robert Daines, Paul Edelman, Moran Ofir, William Rinner, Roberta Romano, Randall Thomas and seminar participants at Columbia Law School, University of Toronto Law School, Vanderbilt Law School, and the Cegla Center of Tel Aviv University’s Conference on Financial Regulation and Comparative Corporate Governance. All errors are my own.
- Other articles by this author:
- De Gruyter OnlineGoogle Scholar
Organizations with multiple stakeholders typically make decisions by following the will of the majority of some subset of stakeholders that are entitled to vote. This Article examines an alternative decisionmaking mechanism - the “pivotal” mechanism developed by Vickrey, Groves and Clarke. Unlike voting, the pivotal mechanism produces efficient outcomes in the presence of heterogeneous voter preferences. Moreover, the mechanism allows control rights to be allocated more widely, reducing the costs of opportunism when a controlling class of stakeholders has interests adverse to another class. These benefits come with costs. The pivotal mechanism’s efficiency diminishes in the presence of collusion between voters and requires the creation of “pools” that disperse revenues created by the mechanism. The mechanism is therefore most attractive when the costs of heterogeneity are large and the risks of collusion are small. As a result, I propose the development of a legal basis for the pivotal mechanism as a menu option for organizational decision-making.