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Constrained efficiency versus unanimity in incomplete markets

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  • Michael Zierhut

    (Humboldt University)

Abstract

In production economies with incomplete markets, shareholders disagree about optimal production plans, and there is no natural objective of the firm. From a normative perspective, the firm should choose plans that lead to a constrained Pareto efficient allocation. From a positive perspective, all decisions of the firm should be supported by a majority of shareholders. This paper asks whether one can design objectives for the firm that meet both normative and positive criteria. The answer is negative: Constrained efficient production plans would generically be turned down by a majority of shareholders. This finding is related to the generic nonexistence of Makowski equilibria.

Suggested Citation

  • Michael Zierhut, 2017. "Constrained efficiency versus unanimity in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(1), pages 23-45, June.
    • Handle: RePEc:spr:joecth:v:64:y:2017:i:1:d:10.1007_s00199-016-0968-1
    DOI: 10.1007/s00199-016-0968-1
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    Cited by:

    1. Marc Oliver Bettzüge & Thorsten Hens & Michael Zierhut, 2022. "Financial intermediation and the welfare theorems in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 457-486, April.
    2. Zierhut, Michael, 2019. "Nonexistence of constrained efficient production plans," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 127-136.
    3. Camelia Bejan, 2020. "Investment and financing in incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(1), pages 149-182, February.
    4. Michael Zierhut, 2021. "Indeterminacy of Cournot–Walras equilibrium with incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(1), pages 81-114, February.

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    More about this item

    Keywords

    Incomplete markets with production; Firm objectives; Constrained efficiency; Shareholder unanimity; Majority stability;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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