Constrained efficiency versus unanimity in incomplete markets

Michael Zierhut ()
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Michael Zierhut: Humboldt University

Economic Theory, 2017, vol. 64, issue 1, No 2, 23-45

Abstract: Abstract In production economies with incomplete markets, shareholders disagree about optimal production plans, and there is no natural objective of the firm. From a normative perspective, the firm should choose plans that lead to a constrained Pareto efficient allocation. From a positive perspective, all decisions of the firm should be supported by a majority of shareholders. This paper asks whether one can design objectives for the firm that meet both normative and positive criteria. The answer is negative: Constrained efficient production plans would generically be turned down by a majority of shareholders. This finding is related to the generic nonexistence of Makowski equilibria.

Keywords: Incomplete markets with production; Firm objectives; Constrained efficiency; Shareholder unanimity; Majority stability (search for similar items in EconPapers)
JEL-codes: D21 D52 D53 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00199-016-0968-1

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