Production in incomplete markets: Expectations matter for political stability
AbstractIn the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 45 (2009)
Issue (Month): 3-4 (March)
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Web page: http://www.elsevier.com/locate/jmateco
Incomplete markets Super majority voting Political (in)stability Self-fulfilling expectations;
Other versions of this item:
- Hervé Crès & Mich Tvede, 2009. "Production in Incomplete Markets: Expectations Matter for Political Stability," Discussion Papers 09-01, University of Copenhagen. Department of Economics.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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