Output contingent securities and efficient investment by firms

Luis Braido () and Victor Filipe Martins da Rocha ()
Additional contact information
Victor Filipe Martins da Rocha: EESP - Sao Paulo School of Economics - FGV - Fundacao Getulio Vargas [Rio de Janeiro], CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Authors registered in the RePEc Author Service: V. Filipe Martins-da-Rocha

Post-Print from HAL

Abstract: We analyze competitive economies with risky investments. Unlike the classic Arrow--Debreu framing, firms and agents cannot contract upon the exogenous states underlying production risks. They can trade equities and any security written on the endogenous aggregate output. This financial structure is rich enough to promote efficient risk sharing among consumers. However, markets are incomplete from the production perspective, and the absence of prices for each primitive state of nature raises the question about the objective of firms. We show that output-contingent asset prices convey sufficient information to compute the competitive shareholder value that leads to efficient investment by firms.

Keywords: Endogenous risk; Efficiency; CAPM; Competitive equilibrium; Production; Investment; Incomplete markets (search for similar items in EconPapers)
Date: 2018-05-17
Note: View the original document on HAL open archive server: https://hal.science/hal-01097363v4
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in International Economic Review, 2018, 59 (2), pp.989-1012. ⟨10.1111/iere.12294⟩

Downloads: (external link)
https://hal.science/hal-01097363v4/document (application/pdf)

Related works:
Working Paper: Output contingent securities and efficient investment by firms (2012)
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:hal:journl:hal-01097363

DOI: 10.1111/iere.12294

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().