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The role of initial shares in multi-period production economies with incomplete markets

Listed author(s):
  • Dierker, Egbert

    (Institute for Advanced Studies, Vienna, and Vienna Graduate School of Economics)

Registered author(s):

    This paper focuses on a single firm with constant returns to scale in a multi-period setting with incomplete markets and a single good per state. Profits vanish whenever the firm maximizes profits with respect to a given price system. The paper addresses the following question: Shall the firm always act as a price taker? In the case of a partnership, there are no initial shares and no profits accrue from production. A corporation, however, has initial shareholders and can sell its output at any price. An example shows that this additional freedom can improve efficiency and welfare. This results from the fact that a wedge between price and cost can mitigate the inefficiency caused by the consumers who disregard the impact of their initial portfolio decisions on subsequent markets.

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    File URL: http://www.ihs.ac.at/publications/eco/es-327.pdf
    File Function: First version, 2017
    Download Restriction: no

    Paper provided by Institute for Advanced Studies in its series Economics Series with number 327.

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    Length: 22 pages
    Date of creation: Jan 2017
    Handle: RePEc:ihs:ihsesp:327
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