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Asset Markets and Investment Decisions

Author

Listed:
  • A. De Waegenaere

    (Tilburg University, The Netherlands)

  • H. Polemarchakis

    (Brown University, USA)

  • L. Ventura

    (Universitý La Sapienza, Italy, CORE, UniversitÈ Catholique de Louvain, Belgium)

Abstract

In an incomplete asset market, firms assign values to investment plans by projecting their payoffs on the span of the payoffs of marketed assets. This is a criterion that does not require firms to possess information, such as the marginal valuation of revenue across date-events by shareholders, which is not directly observable; rather, it is based on the prices and payoffs of marketed assets. Under standard assumptions, competitive equilibria exist. However, even in the absence of nominal assets, competitive equilibrium allocations are generically indeterminate. The set of competitive equilibria is indexed by the price level at each state of the world, which has implications for the effectiveness of monetary policy. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Suggested Citation

  • A. De Waegenaere & H. Polemarchakis & L. Ventura, 2002. "Asset Markets and Investment Decisions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 857-873, August.
    • Handle: RePEc:ier:iecrev:v:43:y:2002:i:3:p:857-873
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    References listed on IDEAS

    as
    1. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
    2. Peter M. DeMarzo, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 713-734.
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    More about this item

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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