Democratic versus elite governance for project selection decisions in executive committees

Executive committees make critical decisions regarding project selection in different ways. In a committee operating under a democratic governance structure, all members have the right to vote, but the majority of voters ultimately decide which projects to undertake. Alternatively, in a committee operating under an elite governance structure, the decision is made only by a restricted number of voters. Therefore, in an elite governance, there are decision makers or elite members, and non-decision makers or common members. In this article, we study how committee members under either a democratic or elite governance structure interact and communicate information to each other, and ultimately make a decision about a project with uncertain revenues. We find that the efficient committee governance structure, i.e., the one that maximizes the expected surplus of the committee, can be determined by focusing on one specific communication between elite and common committee members. Further, we establish a sufficient condition on the revenues distribution for each governance structure to be efficient. Finally, when this sufficient condition on the revenues distribution does not hold, we find that governance efficiency depends on the probability of the decision makers to learn the true value of the revenues being sufficiently high or the one of the non-decision makers being sufficiently low or both these two conditions. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

The article examines how committee members interact and make project selection decisions under democratic and elite governance structures. It is found that the efficient committee governance structure can be determined by focusing on specific communication between elite and common committee members.