Nonexistence of constrained efficient production plans
Michael Zierhut
Journal of Mathematical Economics, 2019, vol. 83, issue C, 127-136
Abstract:
Any normative theory is based on a standard of social welfare. When markets are incomplete, the usual standard is constrained efficiency: A planner who may only use traded assets for transfers of future income cannot achieve a Pareto improvement. This paper points out that constrained efficiency is a weak basis for the normative theory of the firm. Unless short sales are restricted, a constrained Pareto optimum need not exist. This nonexistence problem is robust to perturbations of endowments and leads to surprising economic outcomes: Even though Drèze equilibria are the only candidates for constrained efficient plans, all of them can be Pareto dominated by equilibria with alternative objectives of the firm.
Keywords: Incomplete markets with production; Constrained efficiency; Firm objectives; Drèze equilibria (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304406819300588
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:83:y:2019:i:c:p:127-136
DOI: 10.1016/j.jmateco.2019.04.011
Access Statistics for this article
Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii
More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).