Discussion Paper Details

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Title: Brexit: Dynamic Voting with an Irreversible Option

Author(s): Benny Moldovanu and Frank Rosar

Publication Date: November 2019

Keyword(s): Dynamic voting, Irreversible option, Option value and Supermajority rules

Programme Area(s): Industrial Organization

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 compare strengths 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 too small super majority can perform very poorly under circumstances where it is socially optimal to 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 problem without relying on fine-tuning, but can lead to inefficient delays. If a final decision for either alternative requires winning by a certain margin, and if a new vote is triggered otherwise, both problems, choosing LEAVE too easily and inefficient delays, can often be avoided.

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Bibliographic Reference

Moldovanu, B and Rosar, F. 2019. 'Brexit: Dynamic Voting with an Irreversible Option'. London, Centre for Economic Policy Research.