Faculty of Economics and Business Administration Publications Database

Club-in-the-Club: Reform under Unanimity

Berglöf, Erik
Burkart, Mike
Paltseva, Elena
Volume: 40
Number: 3
Pages: 492 - 507
Month: August
ISSN-Print: 0147-5967
Link External Source: Online Version
Year: 2012
Keywords: Organizations; Club good; Voting rules; EU integration

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. 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.