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Investment Choices: Indivisible non-Marketable Assets and Bounded Rationality

Listed author(s):
  • Pierpaolo Pattitoni


    (Department of Management, University of Bologna, Italy)

  • Marco Savioli


    (Department of Economics, University of Siena, Italy; Faculty of Economics-Rimini, University of Bologna, Italy; The Rimini Centre for Economic Research (RCEA), Italy)

Several investment decisions deal with non-marketable assets. Nonmarketable assets are available only to one investor and are often indivisible. This has relevant consequences on investor investment opportunities. Adhering to a mean variance representation of the investment space and considering a non-marketable asset (divisible or not), we derive some possible investment scenarios an investor may face. Furthermore, we show how bounded rationality affects investor portfolio choices. Our results define a set of conditions under which the non-marketable asset represents a good investment and show that, under certain assumptions, the efficient frontier exhibits non-linearities and intervals of discontinuity. That allows us to classify investors who can access a non-marketable investment as either entrepreneurs, who undertake it, or clerks, who invest their entire wealth on the market.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 07_11.

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Date of creation: Jan 2011
Publication status: Published in Economic Modelling, 28(6):2387-2394, 2011
Handle: RePEc:rim:rimwps:07_11
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  1. Kerins, Frank & Smith, Janet Kiholm & Smith, Richard, 2004. "Opportunity Cost of Capital for Venture Capital Investors and Entrepreneurs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 385-405, June.
  2. Svensson, L.E.O., 1988. "Portfolio Choice And Asset Pricing With Nontraded Assets," Papers 417, Stockholm - International Economic Studies.
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