DP14101 Brexit: Dynamic Voting with an Irreversible Option
|Author(s):||Benny Moldovanu, Frank Rosar|
|Publication Date:||November 2019|
|Keyword(s):||Dynamic voting, Irreversible option, Option value, Supermajority rules|
|JEL(s):||C72, D72, D82|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=14101|
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.