Microeconomics Workshop - Lucy White
"A Theory of Vote Trading and Information Aggregation"
The ease and affordability of derivative contracts separating shares' voting from cash flow rights around corporate elections is a cause of policy concern. We model a market where informed, uninformed, and biased shareholders endogenously demand or supply such "empty votes". Uninformed shareholders suffer from a "swing voters curse," making them reluctant to vote their shares, but they willingly supply them to informed shareholders. The presence of biased traders in the market creates a friction which may either efficiently prevent trade or result in welfare-reducing voluntary trading at a zero price. We propose a market redesign which avoids inefficient trading.