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Issues on Integrating Real and Financial Decisions

  • Leonard J. Mirman
  • Egas M. Salgueiro
  • Marc Santugini

We study the issue of integrating real and financial decisions in the monopoly framework. To that end, we combine the decisions of the firm with the decisions of the shareholders. When the managing shareholder chooses production, risk allocation, and the total number of shares for the risky asset, we show that there is no Nash equilibrium with a competitive financial market. Existence is reestablished under various restrictions on the set for the total number of shares. Moreover, there exists a Stackelberg equilibrium when the managing shareholder is the leader. In addition to discussing the issue of existence, we compare the equilibrium outcomes for each restriction we impose.

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File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2013/CIRPEE13-33.pdf
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Paper provided by CIRPEE in its series Cahiers de recherche with number 1333.

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Date of creation: 2013
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Handle: RePEc:lvl:lacicr:1333
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  1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  2. Dotan, Amihud & Ravid, S Abraham, 1985. " On the Interaction of Real and Financial Decisions of the Firm under Uncertainty," Journal of Finance, American Finance Association, vol. 40(2), pages 501-17, June.
  3. Mirman, Leonard J. & Santugini, Marc, 2013. "Firms, shareholders, and financial markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 152-164.
  4. Baron, David P, 1970. "Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 463-80, October.
  5. Baron, David P, 1971. "Demand Uncertainty in Imperfect Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(2), pages 196-208, June.
  6. Leonard J. Mirman & Neelam Jain, 2000. "Real and financial effects of insider trading with correlated signals," Economic Theory, Springer, vol. 16(2), pages 333-353.
  7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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