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On the Theory of the Firm in an Economy with Incomplete Markets

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Steinar Ekern
Robert Wilson

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Abstract

This article establishes conditions sufficient to ensure that a decision of a firm is judged to be desirable by any one shareholder (e.g., the firm's manager) if and only if every shareholder judges it to be desirable. One such condition is that the decision would not alter the set of distributions of returns available in the whole economy. Another is that shareholders are interested only in the mean and variance of the returns from their portfolios. The analysis allows for the possibility of incomplete markets.

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File URL: http://links.jstor.org/sici?sici=0005-8556%28197421%295%3A1%3C171%3AOTTOTF%3E2.0.CO%3B2-S&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 5 (1974)
Issue (Month): 1 (Spring)
Pages: 171-180
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Handle: RePEc:rje:bellje:v:5:y:1974:i:spring:p:171-180

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  1. John Bryant, 1978. "Approximately complete markets: a generalization of the states of the world model," Staff Report 33, Federal Reserve Bank of Minneapolis. [Downloadable!]
  2. David K. Levine, 1989. "Infinite Horizon Equilibrium with Incomplete Markets," Levine's Working Paper Archive 49, David K. Levine. [Downloadable!]
  3. Alvaro Rodriguez, 1996. "The stock market and the vacancy rate," Journal of Economics, Springer, vol. 63(3), pages 237-258, October. [Downloadable!] (restricted)
  4. John Geanakoplos, 1989. "An Introduction to General Equilibrium with Incomplete Asset Markets," Cowles Foundation Discussion Papers 919, Cowles Foundation, Yale University. [Downloadable!]
  5. David P. Baron, 1975. "Flexible Exchange Rates," Discussion Papers 127, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  6. Mich Tvede & Hervé Crès, 2004. "Voting in Assemblies of Shareholders and Incomplete Markets," Discussion Papers 04-09, University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  7. David P. Baron, 1977. "On the Relationship Between Complete and Incomplete Financial Markets Models," Discussion Papers 241, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  8. Pascal Stiefenhofer, 2009. "Production in General Equilibrium with Incomplete Markets," Discussion Papers 09/06, Department of Economics, University of York. [Downloadable!]
  9. Bejan, Camelia, 2008. "Production and financial decisions under uncertainty," MPRA Paper 11033, University Library of Munich, Germany. [Downloadable!]
  10. Hervé Crès, 2006. "A Geometric Study of Shareholders’ Voting in Incomplete Markets: Multivariate Median and Mean Shareholder Theorems," Social Choice and Welfare, Springer, vol. 27(2), pages 377-406, October. [Downloadable!] (restricted)
  11. Tarun Sabarwal, 2004. "A Consistent Firm Objective When Markets are Incomplete: Profit Maximization," Econometric Society 2004 North American Summer Meetings 141, Econometric Society. [Downloadable!]
  12. CRES, Herve & TVEDE, Mich, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," Les Cahiers de Recherche 726, HEC Paris. [Downloadable!]
  13. Frederic H. Murphy, 1975. "Capital Structure and the Value of the Firm," Discussion Papers 161, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  14. Michael Magill, 2000. "Equity, Options and Efficiency in the Presence of Moral Hazard," Econometric Society World Congress 2000 Contributed Papers 1845, Econometric Society. [Downloadable!]
  15. Merton, Robert C., 1977. "On the microeconomic theory of investment under uncertainty," Working papers 958-77., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
    Other versions:
  16. Tarun Sabarwal, 2004. "Value Maximization As An Ex Post Consistent Firm Objective When Markets are Incomplete," GE, Growth, Math methods 0406002, EconWPA, revised 19 Jul 2004. [Downloadable!]
  17. David K. Levine, 1986. "Infinite Horizon Equilibrium with Incomplete Markets," UCLA Economics Working Papers 418, UCLA Department of Economics. [Downloadable!]
  18. Khang Min Lee, 2002. "Optimal Financial Markets Liberalization," Departmental Working Papers wp0202, National University of Singapore, Department of Economics. [Downloadable!]
  19. Quinzii, Martine & Magill, Michael, 2008. "Normative Properties of Stock Market Equilibrium with Moral Hazard," Working Papers 08-2, University of California at Davis, Department of Economics. [Downloadable!]
    Other versions:
  20. Hayne E. Leland, 1973. "Production Theory and the Stock Market," Cowles Foundation Discussion Papers 361, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  21. Mark A. Satterthwaite, 1977. "On Stockholder Unanimity Towards Changes in Production Plans," Discussion Papers 293, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  22. VENTURA, Luigi, 1998. "Investment decisions and normalization with incomplete markets: a remark," CORE Discussion Papers 1998028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  23. Mark A. Satterthwaite, 1979. "On the Scope of Stockholder Unanimity Theorems," Discussion Papers 368, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  24. David Bowman & Jon Faust, 1995. "Options, sunspots, and the creation of uncertainty," International Finance Discussion Papers 510, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
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