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On the objective of firms under uncertainty with stock markets

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  • Jean-Marc Bonnisseau

    ()
    (CERMSEM)

  • Oussama Lachiri

    ()
    (CERMSEM)

Abstract

In a multi-period, multi-commodity economy with stock markets, we try to extend the work of Drèze (1974) to define the behaviour of the firms. We exhibit first order necessary conditions for a constrained Pareto optimal allocation. The financial constraints lead to non-collinear supporting spot prices for the consumers at each node. Nevertheless, the firms are satisfying a first order necessary condition for profit maximization with respect to a price computed as the Drèze's prices. These prices are also consistent in the sense that the present value of the firms computed with the personal prices of the stockholders and with the Drèze's prices coincide when short sales are allowed. We also show that these conditions are simpler if we consider an allocation at which each consumer maximizes his preferences, when they are smooth. This allows us to give a formal definition for the objective of the firms, which extend the Drèze's criterion. We also discuss different definitions of constrained feasibility and we provide the related necessary conditions, which do not differ for the production sector.

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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b04122.

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Length: 18 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:mse:wpsorb:b04122

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Keywords: Constrained Pareto optimality; multi-period; firm's behaviour; incomplete markets; Drèze's criterion; stock market.;

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References

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  1. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2000. "Objectives of an Imperfectly Competitive Firm: A Surplus Approach," Vienna Economics Papers 0007, University of Vienna, Department of Economics.
  2. John Geanakoplos & Michael Magill & Martine Quinzii & J. Dreze, 1988. "Generic Inefficiency of Stock Market Equilibrium When Markets Are Incomplete," Cowles Foundation Discussion Papers 863, Cowles Foundation for Research in Economics, Yale University.
  3. 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.).
  4. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
  5. Oussama Lachiri & Jean-Marc Bonnisseau, 2004. "Dreze's Criterion In A Multi-Period Economy With Stock Markets," Royal Economic Society Annual Conference 2004 88, Royal Economic Society.
  6. Camelia Bejan, 2008. "The objective of a privately owned firm under imperfect competition," Economic Theory, Springer, vol. 37(1), pages 99-118, October.
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Cited by:
  1. Jacques H. Drèze & Oussama Lachiri & Enrico Minelli, 2007. "Shareholder-efficient production plans in a multi-period economy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00188336, HAL.
  2. Jean-Marc Bonnisseau & Oussama Lachiri, 2006. "About the second theorem of welfare economics with stock markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118822, HAL.
  3. Bejan, Camelia, 2008. "Production and financial decisions under uncertainty," MPRA Paper 11033, University Library of Munich, Germany.
  4. 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).
  5. Volker Britz & P. Herings & Arkadi Predtetchinski, 2013. "A bargaining theory of the firm," Economic Theory, Springer, vol. 54(1), pages 45-75, September.
  6. repec:hal:journl:halshs-00118822 is not listed on IDEAS

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