Initial shares can cause Pareto improvements when markets are incomplete

Egbert Dierker

Economic Theory Bulletin, 2018, vol. 6, issue 2, No 4, 181 pages

Abstract: Abstract The paper focuses on a single firm with constant returns to scale in a multi-period setting with incomplete markets and a single good per state. The firm can be organized as a partnership or as a corporation. In the case of a partnership, there are no initial shares and profits vanish. A corporation has initial shareholders and can sell its output at any market-clearing price. An example shows that the introduction of initial shares can cause a Pareto improvement. The firm sells its output below costs so that the net sellers of initial shares subsidize the net buyers. The initial shares are chosen such that, for each consumer, the benefits of the output expansion more than outweigh the cost increase.

Keywords: Multi-period economies with incomplete markets; Partnerships and corporations; Marginal cost pricing; The role of initial shares; The objective of a firm; Efficiency and social welfare (search for similar items in EconPapers)
JEL-codes: D21 D52 D61 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40505-018-0135-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:etbull:v:6:y:2018:i:2:d:10.1007_s40505-018-0135-x

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40505

DOI: 10.1007/s40505-018-0135-x

Access Statistics for this article

Economic Theory Bulletin is currently edited by Nicholas C. Yannelis

More articles in Economic Theory Bulletin from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().