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Voting in assemblies of shareholders and incomplete markets

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  • Mich Tvede

    ()

  • Hervé Crés

    ()

Abstract

An economy with two dates is considered, one state at the first date and a finite number of states at the last date. Shareholders determine production plans by voting - one share, one vote - and at $\rho$ -majority stable stock market equilibria, alternative production plans are supported by at most $\rho \times 100$ percent of the shareholders. It is shown that a $\rho$ -majority stable stock market equilibrium exists if $$ \rho\ \geq\ \dfrac{S-J}{S-J + 1}, $$ where S is the number of states at the last date and J is the number of firms. Moreover, an example shows that $\rho$ -majority stable stock market equilibria need not exist for smaller $\rho$ ’s. Copyright Springer-Verlag Berlin/Heidelberg 2005

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 26 (2005)
Issue (Month): 4 (November)
Pages: 887-906

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Handle: RePEc:spr:joecth:v:26:y:2005:i:4:p:887-906

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Keywords: General equilibrium; Incomplete markets; Production; Shareholders’ voting; Super majority.;

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References

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  1. Balasko, Yves & Cres, Herve, 1997. "The Probability of Condorcet Cycles and Super Majority Rules," Journal of Economic Theory, Elsevier, vol. 75(2), pages 237-270, August.
  2. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, Econometric Society, vol. 40(2), pages 289-303, March.
  3. Ferejohn, John A. & Grether, David M., 1974. "On a class of rational social decision procedures," Journal of Economic Theory, Elsevier, vol. 8(4), pages 471-482, August.
  4. Caplin, Andrew S & Nalebuff, Barry J, 1988. "On 64%-Majority Rule," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 787-814, July.
  5. DREZE, Jacques H., . "Uncertainty and) the firm in general equilibrium theory," CORE Discussion Papers RP -611, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, Econometric Society, vol. 59(1), pages 1-23, January.
  7. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, Econometric Society, vol. 47(3), pages 627-36, May.
  8. Steinar Ekern & Robert Wilson, 1974. "On the Theory of the Firm in an Economy with Incomplete Markets," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 171-180, Spring.
  9. CRES, Herve & TVEDE, Mich, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," Les Cahiers de Recherche 726, HEC Paris.
  10. Sanford Grossman & Oliver Hart, 1978. "A theory of competitive equilibrium in stock market economies," Special Studies Papers 115, Board of Governors of the Federal Reserve System (U.S.).
  11. CRES, Herve, 2000. "Majority stable production equilibria : a multivariate mean shareholders theorem," Les Cahiers de Recherche 706, HEC Paris.
  12. Wayne Shafer & Hugo Sonnenschein, 1974. "Equilibrium in Abstract Economies Without Ordered Preferences," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 94, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. DeMarzo, Peter M, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(3), pages 713-34, July.
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Citations

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Cited by:
  1. Hervé Crès & Mich Tvede, 2005. "On the political economy of adverse selection," Sciences Po publications 05-14, Sciences Po.
  2. Alberto Bisin & Piero Gottardi & Guido Ruta, 2014. "Equilibrium Corporate Finance and Intermediation," NBER Working Papers 20345, National Bureau of Economic Research, Inc.
  3. Hervé Crès & Mich Tvede, 2009. "Production in Incomplete Markets: Expectations Matter for Political Stability," Discussion Papers 09-01, University of Copenhagen. Department of Economics.
  4. Volker Britz & P. Herings & Arkadi Predtetchinski, 2013. "A bargaining theory of the firm," Economic Theory, Springer, Springer, vol. 54(1), pages 45-75, September.
  5. Guido Ruta & Piero Gottardi, 2009. "Equilibrium corporate finance," 2009 Meeting Papers, Society for Economic Dynamics 149, Society for Economic Dynamics.
  6. repec:spo:wpecon:info:hdl:2441/10267 is not listed on IDEAS
  7. Hervé Crès & Mich Tvede, 2013. "Production externalities: internalization by voting," Economic Theory, Springer, Springer, vol. 53(2), pages 403-424, June.
  8. Hnatkovska, Viktoria, 2010. "Home bias and high turnover: Dynamic portfolio choice with incomplete markets," Journal of International Economics, Elsevier, vol. 80(1), pages 113-128, January.
  9. Tirelli, Mario, 2006. "The evaluation of public investments under uncertainty," Research in Economics, Elsevier, Elsevier, vol. 60(4), pages 188-198, December.
  10. Britz Volker & Herings Jean-Jacques & Predtetchinski Arkadi, 2010. "Theory of the Firm: Bargaining and Competitive Equilibrium," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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