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Majority Stable Production Equilibria: A Multivariate Mean Shareholders Theorem

  • Hervé Crès
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    In a simple parametric general equilibrium model with S states of nature and K · S ¯rms |and thus potentially incomplete markets|, rates of super majority rule ½ 2 [0; 1] are computed which guarantee the existence of ½{majority stable production equilibria: within each ¯rm, no alternative production plan can rally a proportion bigger than ½ of the shareholders, or shares (depending on the governance), against the equilibrium. Under some assumptions of concavity on the distributions of agents' types, the smallest ½ are shown to obtain for announced production plans whose span contains the ideal securities of all K mean shareholders. These rates of super majority are always smaller than Caplin and Nalebu® (1988, 1991) bound of 1¡1=e ¼ 0:64. Moreover, simple majority production equilibria are shown to exist for any initial distribution of types when K = S ¡1, and for symmetric distributions of types as soon as K ¸ S=2.

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    File URL: http://spire.sciencespo.fr/hdl:/2441/10284/resources/cres-crhec-2000.pdf
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    Paper provided by Sciences Po in its series Sciences Po publications with number 706/2000.

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    Date of creation: Jul 2000
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    Handle: RePEc:spo:wpmain:info:hdl:2441/10284
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    1. Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., 1990. "Generic inefficiency of stock market equilibrium when markets are incomplete," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 113-151.
    2. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Social Choice: A Mean Voter Theorem," Cowles Foundation Discussion Papers 938, Cowles Foundation for Research in Economics, Yale University.
    3. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-30, March.
    4. Egbert DIERKER & Hildegard DIERKER & Birgit GRODAL, 1999. "Incomplete Markets and the Firm," Vienna Economics Papers vie9902, University of Vienna, Department of Economics.
    5. 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.
    6. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, vol. 47(3), pages 627-36, May.
    7. DeMarzo, Peter M, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 713-34, July.
    8. Caplin, Andrew S & Nalebuff, Barry J, 1988. "On 64%-Majority Rule," Econometrica, Econometric Society, vol. 56(4), pages 787-814, July.
    9. Alessandro Citanna & Antonio Villanacci, 2004. "Pooling and endogenous market incompleteness," Economic Theory, Springer, vol. 24(3), pages 549-560, October.
    10. Mich Tvede & Hervé Crès, 2000. "Ordering Pareto-Optima through Majority Voting," Discussion Papers 00-15, University of Copenhagen. Department of Economics.
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