A Statitical Approach to General equilibrium with Production
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.
|Date of creation:||04 Mar 2007|
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