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Equilibrium Corporate Finance and Intermediation

Listed author(s):
  • Piero Gottardi

    (European University Institute)

  • Guido Ruta

    (NYU and University of Bologna)

  • Alberto Bisin

    (New York University)

This paper analyzes a class of competitive economies with production, incomplete financial markets, and agency frictions. Firms take their production, financing, and contractual decisions so as to maximize their value under rational conjectures. We show that competitive equilibria exist and that shareholders always unanimously support firms' choices. In addition, equilibrium allocations have well-defined welfare properties: they are constrained efficient when information is symmetric, or when agency frictions satisfy certain specific conditions. Furthermore, equilibria may display specialization on the part of identical firms and, when equilibria are constrained inefficient, may exhibit excessive aggregate risk. Financial decisions of the corporate sector are determined at equilibrium and depend not only on the nature of financial frictions but also on the consumers' demand for risk. Financial intermediation and short sales are naturally accounted for at equilibrium.

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File URL: https://economicdynamics.org/meetpapers/2015/paper_358.pdf
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Paper provided by Society for Economic Dynamics in its series 2015 Meeting Papers with number 358.

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Date of creation: 2015
Handle: RePEc:red:sed015:358
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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