ParaLead Information

Most corporations are governed through voting and the election of agents like the Board of Directors. However, such mechanisms are prone to agency problems such as moral hazard and free-riding. ParaLead utilizes Parallel Markets as an alternative governance mechanism that does not require voting or a Board of Directors. Rather, it derives the optimal decisions from market equilibrium prices. For any decision, first, the current shareholders generate the set of decision choices (decision initiatives). Then the mechanism replicates the shares of the company for each choice. These shares are conditional on whether the choice is selected. Speculators can buy and sell these conditional shares, resulting in an equilibrium price for the conditional shares under each choice. Then the choice with the highest price is selected and ratified as the effective decision. The other choices and their conditional shares are voided, and their transactions are refunded. Therefore, the mechanism autonomously selects and ratifies the choice that maximizes the market capitalization of the company. As a proof of concept, this mechanism is implemented in a web application and its functionality is demonstrated via online experimentation. The results are close to optimal despite the small group size, thin markets, small incentives, and short periods to reach equilibrium.