Incentives And Risk Sharing In A Stock Market Equilibrium
AbstractEconomists hold two opposing views of the stock market: one focuses on the negative effect on incentives of separating ownership and control, the other emphasizes its beneficial role for risk sharing. Using a generalization of Diamond's model which incorporates the effect of entrepreneurial incentives, we show how these two views can be reconciled. We introduce the concept of a stock market equilibrium with rational competitive price perceptions (RCPP) and show that such and equilibrium leads to a constrained optimal trade-off between risk sharing and incentives. We give examples showing the difference between RCPP equilibria and the standard CAPM type equilibria of finance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by California Davis - Department of Economics in its series Department of Economics with number 96-12.
Date of creation:
Date of revision:
Contact details of provider:
Postal: University of California Davis - Department of Economics. One Shields Ave., California 95616-8578
Phone: (530) 752-0741
Fax: (530) 752-9382
Web page: http://www.econ.ucdavis.edu/
More information through EDIRC
Other versions of this item:
- Martine Quinzii & Michael Magill, 2003. "Incentives and Risk Sharing in a Stock Market Equilibrium," Working Papers 9612, University of California, Davis, Department of Economics.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Peter Bossaerts & Caroline Fohlin, 2000. "Universal Banking and the Pricing of Securities Risk: Historical Evidence from Germany," Econometric Society World Congress 2000 Contributed Papers 1596, Econometric Society.
- Kocherlakota, Narayana R., 1998. "The effects of moral hazard on asset prices when financial markets are complete," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 39-56, February.
- Guido Ruta & Piero Gottardi, 2009.
"Equilibrium corporate finance,"
2009 Meeting Papers
149, Society for Economic Dynamics.
- Wagner, W.B., 2002. "Divestment, Entrepreneurial Incentives and the Decision to go Public," Discussion Paper 2002-47, Tilburg University, Center for Economic Research.
- Alberto Bisin & Piero Gottardi, 2000. "Decentralizing Incentive Efficient Allocations of Economies with Adverse Selection," Econometric Society World Congress 2000 Contributed Papers 0855, Econometric Society.
- Wagner, W.B., 2000. "Decentralized International Risk Sharing and Governmental Moral Hazard," Discussion Paper 2000-92, Tilburg University, Center for Economic Research.
- Sunanda Roy, 2000. "Risk Sharing through Labor Contracts - Risk Aversion, Market Incompleteness and Employment," Econometric Society World Congress 2000 Contributed Papers 1767, Econometric Society.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.