The role of initial shares in multi-period production economies with incomplete markets

Dierker, Egbert (January 2017) The role of initial shares in multi-period production economies with incomplete markets. Former Series > Working Paper Series > IHS Economics Series 327, 22 p.

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This paper focuses on a single firm with constant returns to scale in a multi-period setting with incomplete markets and a single good per state. Profits vanish whenever the firm maximizes profits with respect to a given price system. The paper addresses the following question: Shall the firm always act as a price taker? In the case of a partnership, there are no initial shares and no profits accrue from production. A corporation, however, has initial shareholders and can sell its output at any price. An example shows that this additional freedom can improve efficiency and welfare. This results from the fact that a wedge between price and cost can mitigate the inefficiency caused by the consumers who disregard the impact of their initial portfolio decisions on subsequent markets.

Item Type: IHS Series
Keywords: Multi-period economies with incomplete markets, partnerships and corporations, competitive price perceptions, the role of initial shares, the objective of a firm, efficiency and social welfare
Classification Codes (e.g. JEL): D21, D52, D61
Research Units: Former Research Groups (until 2017) > Financial Markets and Econometrics
Date Deposited: 07 Mar 2017 07:37
Last Modified: 27 Sep 2019 06:03
ISSN: 1605-7996

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