IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Corporate Investment under Uncertainty and Pareto Optimality in the Capital Markets

  • Michael C. Jensen
  • John B. Long Jr.

Within the context of a mean-variance equilibrium model of the pricing of capital assets, this paper investigates the allocation of investment in new risky opportunities which results from the collective behavior of firms, each of which attempts to maximize the net increase in its market value. This allocation is then compared to those allocations which (1) maximize nominal social wealth or (2) maximize social welfare. These comparisons are made under a variety of assumptions concerning the nature of the new opportunities, investor attitudes toward risk, and the number and characteristics of firms in the economy. With the exception of certain special cases, it is found that the private allocation of investment does not correspond to that which either maximizes social wealth or maximizes social welfare.

If 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.

File URL: http://links.jstor.org/sici?sici=0005-8556%28197221%293%3A1%3C151%3ACIUUAP%3E2.0.CO%3B2-G&origin=repec
File Function: full text
Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 3 (1972)
Issue (Month): 1 (Spring)
Pages: 151-174

as
in new window

Handle: RePEc:rje:bellje:v:3:y:1972:i:spring:p:151-174
Contact details of provider: Web page: http://www.rje.org

Order Information: Web: https://editorialexpress.com/cgi-bin/rje_online.cgi

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rje:bellje:v:3:y:1972:i:spring:p:151-174. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.