Working Paper: CEPR ID: DP14101
Authors: Benny Moldovanu; Frank Rosar
Abstract: We analyze Brexit-like decisions in a polarized society. An electorate decides repeatedly be-tween a reversible alternative (REMAIN) and an irreversible alternative (LEAVE). We comparestrengths and weaknesses of several mechanisms that can be used in reality. Voting by super-majority dominates voting by simple majority. Decisions by simple majority and by a toosmall supermajority can perform very poorly under circumstances where it is socially optimalto never LEAVE, as they can exhibit equilibria where LEAVE is chosen very quickly. Mechanisms where LEAVE requires (super)majorities in two consecutive periods avoid this problemwithout relying on fine-tuning, but can lead to inefficient delays. If a final decision for eitheralternative requires winning by a certain margin, and if a new vote is triggered otherwise, bothproblems, choosing LEAVE too easily and inefficient delays, can oftenbe avoided.
Keywords: dynamic voting; irreversible option; option value; supermajority rules
JEL Codes: D72; D82; C72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| supermajority rules (D72) | better decision outcomes (D91) |
| simple majority rules (D79) | welfare-inferior equilibria (D69) |
| supermajority for leave (D79) | prevent undesirable equilibria (D50) |
| too low supermajority threshold (D72) | significant welfare losses (D69) |
| majorities in two consecutive periods (D72) | avoid inferior equilibria (D50) |
| future importance of decisions (G11) | influences voting behavior (K16) |