Drèze equilibria and welfare maxima

Dierker, Egbert and Dierker, Hildegard (2010) Drèze equilibria and welfare maxima. Economic Theory, 45 (1-2), pp. 55-63. DOI: 10.1007/s00199-009-0476-7

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We present an example of a production economy with incomplete markets, von Neumann–Morgenstern utility functions, and a unique Drèze equilibrium in order to illustrate and explain the following phenomenon. There exists a transfer scheme such that every shareholder’s utility after transfers and share adjustments increases the more the firm deviates from the Drèze equilibrium. However, shareholders’ welfare decreases the further the firm departs from the Drèze equilibrium. Shareholders’ welfare is defined as the sum of their utilities where every utility function is normalized such that the marginal utility of today’s consumption equals 1 at the Drèze equilibrium. (authors' abstract)

Item Type: Article in Academic Journal
Date Deposited: 28 Jan 2015 08:15
Last Modified: 01 Apr 2016 14:16
DOI: 10.1007/s00199-009-0476-7
ISSN: 0938-2259
URI: https://irihs.ihs.ac.at/id/eprint/2743

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