Dennis Leech

Designing the voting system for the Council of the European Union

This paper examines thesystem of Qualified Majority Voting, usedby the Council of the European Union, fromthe perspective of enlargement of theUnion. It uses an approach based on powerindices due to Penrose (1946), Banzhaf (1965) and Coleman(1971) to make two analyses: (1) the question ofthe voting power of member countries fromthe point of view of fairness, and (2) thequestion of how the threshold number ofvotes required for QMV should bedetermined. It studies two scenarios forchange from 2005 onwards envisaged by theNice Treaty: (1) no enlargement, the EUcomprising 15 member countries, and (2)full enlargement to 27 members by theaccession of all the present twelvecandidates. The proposal is made that fairweights be determined algorithmically as atechnical or routine matter as themembership changes. The analysis of how thethreshold affects power shows thetrade-offs that countries face betweentheir blocking power and the power of theCouncil to act. The main findings are: (1)that the weights laid down in the NiceTreaty are close to being fair, the onlysignificant discrepancies being theunder-representation of Germany andRomania, and the over-representation ofSpain and Poland; (2) the thresholdrequired for a decision is set too high forthe Council to be an effective decisionmaking body.

Computing Power Indices for Large Voting Games

Voting Power Indices enable the analysis of the distribution of power in a legislature or voting body in which different members have different numbers of votes. Although this approach to the measurement of power, based on co-operative game theory, has been known for a long time its empirical application has been to some extent limited, in part by the difficulty of computing the indices when there are many players. This paper presents new algorithms for computing the power indices of Shapley and Shubik and of Banzhaf, that are essentially modifications of approximation methods due to Owen, and have been shown to work well in real applications. They are of most utility in situations where both the number of players is large and their voting weights are very concentrated, some members having considerably larger numbers of votes than others, where Owens approximation methods are least accurate.

Is comprehensive education really free?: a case- study of the effects of secondary school admissions policies on house prices in one local area

Summary. The paper reports on a study that tests the anecdotal hypothesis that parents are willing to pay a premium to secure places for their children in popular and oversubscribed comprehensive schools. Since many local education authorities use admissions policies that are based on catchment areas and places in popular schools are very difficult to obtain from outside these areas—but very easy from within them—parents have an incentive to move house for the sake of their childrens education. This would be expected to be reflected in house prices. The study uses a cross‐sectional sample based on two popular schools in one local education authority area, Coventry. Differences in quality of housing are dealt with by using the technique of hedonic regression and differences in location by sample selection within a block sample design. The sample was chosen from a limited number of locations spanning different catchment areas to reduce both observable and unobservable variability in nuisance effects while maximizing the variation in catchment areas. The results suggest that there are strong school catchment area effects. For one of the two popular schools we find a 20% premium and for the other a 16% premium on house prices ceteris paribus.

Ownership Concentration and the Theory of the Firm: A Simple-Game-Theoretic Approach

A model of the shareholder constraint is described in terms of the relationship between shareholding concentration and corporate control. A unified perspective (including takeovers as a special case) is developed whereby leading coalitions are costly to form and possess power in a shareholder voting game. Control is defined in terms of power indices for simple games. A static theory of the firm is developed in terms of the optimal formation of controlling coalitions. A dynamic theory of an owner-controlled firm is described which explains increasing shareholding dispersion accompanying growth. Copyright 1987 by Blackwell Publishing Ltd.

Efficient Algorithm for Designing Weighted Voting Games

Weighted voting games are mathematical models, used to analyse situations where voters with variable voting weight vote in favour of or against a decision. They have been applied in various political and economic organizations. Similar combinatorial models are also encountered in neuroscience, threshold logic, reliability theory and distributed systems. The calculation of voting powers of players in a weighted voting game has been extensively researched in the last few years. However, the inverse problem of designing a weighted voting game with a desirable distribution of power has received less attention. We present an elegant algorithm which uses generating functions and interpolation to compute an integer weight vector for target Banzhaf power indices. This algorithm has better performance than any other known to us. It can also be used to design egalitarian two-tier weighted voting games and a representative weighted voting game for a multiple weighted voting game.

Voting Power in the Bretton Woods Institutions

The constitutions of the Bretton Woods Institutions require decisions to be taken by weighted voting: each member country possesses a number of votes, depending on its quota allocation, all of which must always be cast as a bloc. This leads to a problem of democratic legitimacy since a member’s influence or voting power within such decision-making systems does not necessarily correspond to its voting weight. In previous work it has been shown that the present system of weighted voting in the IMF gives disproportionate influence to the USA at the expense of all other members. This effect occurs in both the board of governors and the executive board. This paper looks at the power implications of the structure of the IMF and World Bank executive boards (in which members are grouped into constituencies that cast their combined weighted votes as a bloc) from the point of view of formal voting power (using the Penrose power index). A criticism that is frequently made is that the present constituency structure and voting weights work to enhance the power of the developed and creditor countries at the expense of the poor, and that many countries are effectively impotent; we show that the weighted voting system adds to this anti-democratic bias and produces some unintended effects (for example the disfranchisement of Estonia in the Nordic/Baltic constituency and of five Central American republics in the Spanish/ Mexican/Venezuelan constituency, even though in neither case is there a dictator ). We argue generally that the voting power approach is more than just the calculation of power indices and can in fact produce solid facts by identifying cases where members of weighted voting bodies are actually disfranchised.

Corporate Governance in Spain (with an Application of the Power Indices Approach)

This paper describes the governance system of Spanish listed firms in the early 1990s. Although the institutional setting of the Spanish Stock Exchanges differs little from other European national markets, we found important differences in several aspects of corporate governance. In particular, some of the standard mechanisms of control (e.g. boards and institutional shareholders) do not play an active role, whereas ownership is relatively concentrated. Moreover, power indices suggest that controlling blocs of large shareholders are very likely to form. We thus conclude that the ownership of shares is a pivotal mechanism in the governance of Spanish corporations.

Ownership Concentration and Control in Large U.S. Corporations in the1930s: An Analysis of the TNEC Sample

This paper employs a simple-game-theoretic perspective to analyse the relationship between shareholding concentration and the voting power of leading coalitions among the top 200 non-financial corporations. The power index used to define controlling coalitions is the degree of control of Cubbin and Leech. The results show that, on the basis of observed levels of ownership concentration, control by small coalitions of shareholders was feasible for the majority of companies. There is no evidence on this basis to support a general assumption of a pervasive separation between ownership and control.

Shareholder Voting Power and Ownership Control of Companies

The pattern of ownership and control of British industry compared with most other countries in that ownership is relatively dispersed. Typically the largest shareholder in any large listed company is likely to own a voting minority of the shares. Majority ownership by a single shareholder is unusual. It is not uncommon for the largest shareholding to be under 20 percent in many cases it is much less than that. A broadly similar pattern is observed in the USA. a Two inferences about corporate governance are conventionally drawn from this, following the early work of Berle and Means: (1) All but the very largest shareholders are typically too small to have any real incentive to participate in decision making; (2) All but the very largest shareholdings are too small to have any real voting power. The question of voting power is the focus of this paper. Conventional analyses use a rule of thumb of 20%, assuming shareholders to be fundamentally passive in relation to the running of the company, whatever their style of investment management, unless one of them is above this figure. The London stock Exchange defines a controlling holding to be one greater than 30 percent. Much empirical work uses declarable stakes, which in the Uk are those of 3 percent or more, and disregards anything smaller assuming it to be powerless. In fact, however, a 1% stake in the 100th largest company( Smiths Industries) is worth about u 29 million, which suggests its owner has strong incentives to be active, and might wish to use his voting power. a Theoretical voting power of minority shareholding blocks is studied using the game-theoretic idea of voting power indices. This is applied to a model of ownership control based on the definition of control used by Berle and Means in their classic study. The results give support for use of a 20 percent rule in many cases but not all. Also they support the idea that many companies are potentially controlled by a block of a few large shareholders working in concert.

Corporate governance and game theoretic analyses of shareholder power: the case of Spain

The definition and implementation of control is at the heart of the corporate governance debate. The paper approaches the issue by using power indices derived from the theory of cooperative games. An application to Spanish listed firms shows that incentives for large shareholders to form controlling blocs are high. In the Spanish system of corporate governance ownership concentration is therefore the main mechanism to mitigate agency problems between shareholders and managers. Moreover, these results suggest that the Shapley–Shubik index is not an appropriate measure of shareholder power.