A note on the Drèze’s criterion for large capitalist firms
AbstractThe paper extends the Drèze's Criterion [Investment under private ownership : optimality, equilibrium and stability, in «Allocation under Uncertainty ; Equilibrium and Optimality», Wiley, New York, 1974, p.129] for firms to non-smooth and non-convex technologies and to non-ordered preferences for the consumers. Technically, the proofs follow the lines of Guesnerie [Pareto Optimality in Non-convex Economies, in Econometrica, 43, p. 1-31, (1975)]. Using recent tools of non-smooth analysis, we exhibit the first-order-necessary conditions for constrained Pareto optimal allocations. The Drèze's criterion for firms is recovered, but the profit maximization is replaced by a first-order- necessary condition for optimality, together with other relations between state prices and consumptions. A new stock-market equilibrium is formalized. We show that stock holders buy nothing but stocks of a firm that maximize his expected profit with respect to his own shadow price.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b04120.
Length: 19 pages
Date of creation: Jan 2004
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Stock market; non-smooth analysis; present value; market value.;
Find related papers by JEL classification:
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D60 - Microeconomics - - Welfare Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
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