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Endogenous Financing of Production in General Equilibrium with Incomplete Markets

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  • Pascal Christian Stiefenhofer

Abstract

This paper considers the financing of production in a two period general equilibrium model with incomplete markets. This requires a model where the efficient boundary of the production set available to a producer in period two in every state of the world is not independent of the financial activities of the firm in period one. The novelty of the paper is a definition of a class of long run profit maximization objective functions of the firm which is independent of any average utility of the owners of the firm. This generalizes the traditional objective of profit maximization of the Arrow-Debreu model to the case of incomplete markets. The paper shows that equilibrium exists for convex smooth and convex piecewise linear endogenized production sets.

Suggested Citation

  • Pascal Christian Stiefenhofer, 2010. "Endogenous Financing of Production in General Equilibrium with Incomplete Markets," Discussion Papers 10/20, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:10/20
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    More about this item

    Keywords

    Existence; Incomplete Markets; Pro t Maximization; Production.;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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