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Investment Decisions and Normalization with Incomplete Markets: A Pitfall in Aggregating Shareholders' Preferences


  • Luigi Ventura

    (Dipartimento di Scienze Economiche, Universita La Sapienza, Italy)


Profit maximization is not a well defined objective when markets are incomplete. Several criteria of investment choice have therefore been put forward in the literature, some of which crucially hinge upon aggregation of shareholders' preferences, as is the case with the criteria proposed by Dreze (1974) and Grossman and Hart (1979). This note shows that these criteria are normalization dependent, i.e., their outcome depends on the good chosen to express individuals' marginal rates of substitution.

Suggested Citation

  • Luigi Ventura, 2004. "Investment Decisions and Normalization with Incomplete Markets: A Pitfall in Aggregating Shareholders' Preferences," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 21-28, April.
  • Handle: RePEc:ijb:journl:v:3:y:2004:i:1:p:21-28

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    References listed on IDEAS

    1. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 4(3), pages 381-400, June.
    2. Peter M. DeMarzo, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 713-734.
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    More about this item


    investment decisions; normalization; incomplete markets;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty


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