The probability approach to general equilibrium with production
We develop an alternative approach to the general equilibrium analysis of a stochastic production economy when firms? choices of investment influence the probability distributions of their output. Using a normative approach we derive the criterion that a firm should maximize to obtain a Pareto optimal equilibrium: the criterion expresses the firm?s contribution to the expected social utility of output, and is not the linear criterion of market value. If firms do not know agents utility functions, and are restricted to using the information conveyed by prices then they can construct an approximate criterion which leads to a second-best choice of investment which, in examples, is found to be close to the first best.
(This abstract was borrowed from another version of this item.)
Volume (Year): 39 (2009)
Issue (Month): 1 (April)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/199/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-1190, September.
- William R. Zame, 2007.
"Incentives, Contracts, and Markets: A General Equilibrium Theory of Firms,"
Econometric Society, vol. 75(5), pages 1453-1500, 09.
- William R. Zame, 2005. "Incentives, Contracts And Markets: A General Equilibrium Theory Of Firms," UCLA Economics Working Papers 843, UCLA Department of Economics.
- Prescott, Edward C & Townsend, Robert M, 1984. "General Competitive Analysis in an Economy with Private Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 1-20, February.
- Edward C Prescott & Robert M Townsend, 1997. "General Competitive Analysis in an Economy with Private Information," Levine's Working Paper Archive 1578, David K. Levine.
- Marshall, John M, 1976. "Moral Hazard," American Economic Review, American Economic Association, vol. 66(5), pages 880-890, December.
- Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
- Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
- Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
- Marcos B. Lisboa, 2001. "Moral hazard and general equilibrium in large economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 555-575.
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
- Stephen A. Ross, 1976. "Options and Efficiency," The Quarterly Journal of Economics, Oxford University Press, vol. 90(1), pages 75-89.
- Stephen A. Ross, "undated". "Options and Efficiency," Rodney L. White Center for Financial Research Working Papers 03-74, Wharton School Rodney L. White Center for Financial Research.
- Stephen A. Ross, "undated". "Options and Efficiency," Rodney L. White Center for Financial Research Working Papers 3-74, Wharton School Rodney L. White Center for Financial Research.
- Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
- 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.
- Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., 1990. "Generic inefficiency of stock market equilibrium when markets are incomplete," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 113-151.
- Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., "undated". "Generic inefficiency of stock market equilibrium when markets are incomplete," CORE Discussion Papers RP 916, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.