Production in incomplete markets: Expectations matter for political stability
In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear–quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to – through self-fulfilling expectations – dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
|Date of creation:||Mar 2009|
|Date of revision:|
|Publication status:||Published in Journal of Mathematical Economics, 2009, vol. 45, pp.212-222|
|Contact details of provider:|| Web page: http://www.sciencespo.fr/|
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