Production in incomplete markets: Expectations matter for political stability

Hervé Crès and Mich Tvede

Journal of Mathematical Economics, 2009, vol. 45, issue 3-4, 212-222

Abstract: In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

Keywords: Incomplete; markets; Super; majority; voting; Political; (in)stability; Self-fulfilling; expectations (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Production in incomplete markets: Expectations matter for political stability (2009)
Working Paper: Production in Incomplete Markets: Expectations Matter for Political Stability (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:45:y:2009:i:3-4:p:212-222

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