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A Statitical Approach to General equilibrium with Production


  • Martine Quinzii
  • Michael Magill

    (Department of Economics, University of California Davis)


The paper studies a two-period stochastic economy in which a firm's investment influences the probability distribution of its profit. We take a normative approach, asking which criterion firms should maximize to obtain an equilibrium which is Pareto optimal. We find that a firm should maximize a non-linear function of its profit rather than its market value. We also study the role of prices at conveying the information that firms need in order to choose their investment optimally.

Suggested Citation

  • Martine Quinzii & Michael Magill, 2007. "A Statitical Approach to General equilibrium with Production," Working Papers 75, University of California, Davis, Department of Economics.
  • Handle: RePEc:cda:wpaper:07-5

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