A note on the Drèze’s criterion for large capitalist firms
The paper extends the Drèze's Criterion [Investment under private ownership : optimality, equilibrium and stability, in «Allocation under Uncertainty ; Equilibrium and Optimality», Wiley, New York, 1974, p.129] for firms to non-smooth and non-convex technologies and to non-ordered preferences for the consumers. Technically, the proofs follow the lines of Guesnerie [Pareto Optimality in Non-convex Economies, in Econometrica, 43, p. 1-31, (1975)]. Using recent tools of non-smooth analysis, we exhibit the first-order-necessary conditions for constrained Pareto optimal allocations. The Drèze's criterion for firms is recovered, but the profit maximization is replaced by a first-order- necessary condition for optimality, together with other relations between state prices and consumptions. A new stock-market equilibrium is formalized. We show that stock holders buy nothing but stocks of a firm that maximize his expected profit with respect to his own shadow price.
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- Egbert Dierker & Hildegard Dierker & Birgit Grodal, 1999.
"Incomplete Markets and the Firm,"
99-03, University of Copenhagen. Department of Economics.
- Egbert DIERKER & Hildegard DIERKER & Birgit GRODAL, 1999. "Incomplete Markets and the Firm," Vienna Economics Papers vie9902, University of Vienna, Department of Economics.
- Dierker, E. & Dierker, H. & Grodal, B., 1999. "Incomplete Markets and the Firm," Papers 9902, Washington St. Louis - School of Business and Political Economy.
- Dierker, E. & Dierker, H. & Grobal, B., 1999. "Incomplete Markets and the Firm," Papers 99-03, Carleton - School of Public Administration.
- Egbert Dierker & Hildegard Dierker & Birgit Grodal, 1999. "Incomplete Markets and the Firm," CIE Discussion Papers 1999-05, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
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Cowles Foundation Discussion Papers
863, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
- Sanford Grossman & Oliver Hart, 1978.
"A theory of competitive equilibrium in stock market economies,"
Special Studies Papers
115, Board of Governors of the Federal Reserve System (U.S.).
- Grossman, Sanford J & Hart, Oliver D, 1979. "A Theory of Competitive Equilibrium in Stock Market Economies," Econometrica, Econometric Society, vol. 47(2), pages 293-329, March.
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