Owning Capital or Being Shareholders: An Equivalence Result with Incomplete Markets
AbstractMany recent papers in macroeconomics have studied the implications of models with household heterogeneity and incomplete financial markets under the assumption that households own the stock of physical capital and undertake the intertemporal investment decisions. In these models, production exhibits constant returns to scale, households maximize expected discounted utility, and firms rent capital and labor from households to maximize period by period profits. This paper considers the case in which infinitely lived firms, rather than households, make the intertemporal investment decisions. Under this assumption, it shows that there exists an objective function for firms that results in the same equilibrium allocation as in the standard setting with one period lived firms. The objective requires that firms maximize their asset value, which is defined as the discounted value of future cash flows using present value processes that do not allow for arbitrage opportunities. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 13 (2010)
Issue (Month): 3 (July)
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Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
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Other versions of this item:
- Eva Carceles-Poveda & Daniele Coen Pirani, 2009. "Code and data files for "Owning Capital or being Shareholders: an equivalence result with Incomplete Markets"," Computer Codes 08-124, Review of Economic Dynamics.
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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- Santos, Manuel S. & Woodford, Michael, .
"Rational asset pricing bubbles,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/3913, Universidad Carlos III de Madrid.
- Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-91, June.
- Alexis Anagnostopoulos & Eva Carceles-Poveda, 2010.
"Dividend and Capital Gains Taxation under Incomplete Markets,"
Department of Economics Working Papers
10-06, Stony Brook University, Department of Economics.
- Anagnostopoulos, Alexis & Cárceles-Poveda, Eva & Lin, Danmo, 2012. "Dividend and capital gains taxation under incomplete markets," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 599-611.
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