Production in Incomplete Markets: Expectations Matter for Political Stability

Hervé Crès and Mich Tvede

No 09-01, Discussion Papers from University of Copenhagen. Department of Economics

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; selfulfilling expectations (search for similar items in EconPapers)
JEL-codes: D21 D52 D71 D72 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2009-01
New Economics Papers: this item is included in nep-cdm and nep-cmp
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: 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:kud:kuiedp:0901

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