A note on the Drèze’s criterion for large capitalist firms

Jean-Marc BONNISSEAU () and Oussama Lachiri ()
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Oussama Lachiri: CERMSEM, http://cermsem.univ-paris1.fr

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: The paper extends the Drèze's Criterion [Investment under private ownership : optimality, equilibrium and stability, in «Allocation under Uncertainty ; Equilibrium and Optimality», Wiley, New York, 1974, p.129] for firms to non-smooth and non-convex technologies and to non-ordered preferences for the consumers. Technically, the proofs follow the lines of Guesnerie [Pareto Optimality in Non-convex Economies, in Econometrica, 43, p. 1-31, (1975)]. Using recent tools of non-smooth analysis, we exhibit the first-order-necessary conditions for constrained Pareto optimal allocations. The Drèze's criterion for firms is recovered, but the profit maximization is replaced by a first-order- necessary condition for optimality, together with other relations between state prices and consumptions. A new stock-market equilibrium is formalized. We show that stock holders buy nothing but stocks of a firm that maximize his expected profit with respect to his own shadow price.

Keywords: Stock market; non-smooth analysis; present value; market value. (search for similar items in EconPapers)
JEL-codes: C60 D51 D52 D60 (search for similar items in EconPapers)
Date: 2004-01
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Persistent link: http://EconPapers.repec.org/RePEc:mse:wpsorb:b04120

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