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Expectations Over Durable Assets: How to Avoid the Formation of Value Bubbles

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  • Rosas-Martinez, Victor H.

Abstract

There is a finite set of characteristics which can be present in a durable asset adding value to it, and that are not necessarily part of it in the moment of its adquisition. We represent formally how the expectations over the possible future characteristics of these goods influence its price, and get the conditions for the formation of bubbles, which allows us to propose mechanisms to avoid this kind of instinctive collective regimes. Posteriorly we extend our analysis to consider the case of monopoly and of an m-firms oligopoly producing these kinds of goods, finding that the cardinality of the firm(s)' possible plans of production to maximize benefits is the same. We show relation between the assets' prices and the cardinalities of the sets of suppliers, assets' varieties and entry consumers, with an indirect dependence on the rentlabor wages. We model boundedly an analysis of the effect of tendencies like corruption on newly informed and non-bayesian probabilities that constitute the prices. Finally, some extra provided mechanisms to avoid bubbles focus in reverting badly programed rule of thumbs, to get back to the rightgreat rules respect

Suggested Citation

  • Rosas-Martinez, Victor H., 2016. "Expectations Over Durable Assets: How to Avoid the Formation of Value Bubbles," MPRA Paper 75350, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:75350
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    More about this item

    Keywords

    Non-Bayesian Expectations; Price Bubbles; Profit Maximization; Competition; Corruption; Mechanism Design;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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