Discussion paper

DP19183 Voting on Public Goods: Citizens vs. Shareholders

We study the interplay between a "one person-one vote" political system and a "one share-one vote" corporate governance regime. The political system sets Pigouvian subsidies, while corporate governance determines firm-specific public good investments. Our analysis highlights a two-way feedback effect. In a frictionless economy, shareholder democracy is irrelevant: the political system fully offsets any effects of shareholder influence. With frictions in public policy provision, pro-social corporations fill the void of a dysfunctional regulatory system and increase the provision of public goods-demonstrating the benefit of shareholder democracy. Nevertheless, shareholder democracy can hurt a typical citizen because of the representation problem: it favors the preferences of the wealthy. If shareholders have extreme views, there can be a backlash against ESG initiatives, and the political system may undo or tax corporate social responsibility measures. Advancements in financial technologies that increase investor diversification or enable pass-through voting have important implications for these trade-offs of shareholder democracy.


Döttling, R, D Levit, N Malenko and M Rola-Janicka (2024), ‘DP19183 Voting on Public Goods: Citizens vs. Shareholders‘, CEPR Discussion Paper No. 19183. CEPR Press, Paris & London. https://cepr.org/publications/dp19183