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On the objective of firms under uncertainty with stock markets

In a multi-period, multi-commodity economy with stock markets, we try to extend the work of Drèze (1974) to define the behaviour of the firms. We exhibit first order necessary conditions for a constrained Pareto optimal allocation. The financial constraints lead to non-collinear supporting spot prices for the consumers at each node. Nevertheless, the firms are satisfying a first order necessary condition for profit maximization with respect to a price computed as the Drèze's prices. These prices are also consistent in the sense that the present value of the firms computed with the personal prices of the stockholders and with the Drèze's prices coincide when short sales are allowed. We also show that these conditions are simpler if we consider an allocation at which each consumer maximizes his preferences, when they are smooth. This allows us to give a formal definition for the objective of the firms, which extend the Drèze's criterion. We also discuss different definitions of constrained feasibility and we provide the related necessary conditions, which do not differ for the production sector.

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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b04122.

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Length: 18 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:mse:wpsorb:b04122
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  1. John Geanakoplos & Michael Magill & Martine Quinzii & J. Dreze, 1988. "Generic Inefficiency of Stock Market Equilibrium When Markets Are Incomplete," Cowles Foundation Discussion Papers 863, Cowles Foundation for Research in Economics, Yale University.
  2. Oussama Lachiri & Jean-Marc Bonnisseau, 2004. "Dreze's Criterion In A Multi-Period Economy With Stock Markets," Royal Economic Society Annual Conference 2004 88, Royal Economic Society.
  3. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2000. "Objectives of an Imperfectly Competitive Firm: A Surplus Approach," CIE Discussion Papers 2000-06, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  4. 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.
  5. Camelia Bejan, 2008. "The objective of a privately owned firm under imperfect competition," Economic Theory, Springer, vol. 37(1), pages 99-118, October.
  6. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
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