Production and Financial Policies under Asymmetric Information

Jacques Dreze, Enrico Minelli and Mario Tirelli ()

Working Papers from University of Brescia, Department of Economics

Abstract: We propose an extension of the standard general equilibrium model with production and incomplete markets to situationsin which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited information on the preferences of individual shareholders. The extension is obtained by the assumption that firms are not traded directly but grouped into ‘sectorial’ funds. In our model the financial policy of the firm is not irrelevant. We establish the existence of equilibria and discuss the nature of the inefficiencies introduced by the presence of asymmetric information. We also illustrate the properties of the model in three simple examples.

Date: 2006
New Economics Papers: this item is included in nep-cfn and nep-fmk
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Related works:
Journal Article: Production and financial policies under asymmetric information (2008)
Working Paper: Production and financial policies under asymmetric information (2004)
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