Initial shares can cause Pareto improvements when markets are incomplete

Dierker, Egbert (2018) Initial shares can cause Pareto improvements when markets are incomplete. Economic Theory Bulletin, 6 (2), pp. 171-181.

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The 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. The firm can be organized as a partnership or as a corporation. In the case of a partnership, there are no initial shares and profits vanish. A corporation has initial shareholders and can sell its output at any market-clearing price. An example shows that the introduction of initial shares can cause a Pareto improvement. The firm sells its output below costs so that the net sellers of initial shares subsidize the net buyers. The initial shares are chosen such that, for each consumer, the benefits of the output expansion more than outweigh the cost increase.

Item Type: Article in Academic Journal
Keywords: Multi-period economies with incomplete markets, partnerships and corporations, marginal cost pricing, the role of initial shares, the objective of a firm, efficiency and social welfare
Classification Codes (e.g. JEL): JEL D21, D52, D61
Research Units: Current Research Groups > IHS general publications
Date Deposited: 16 Apr 2018 09:08
Last Modified: 18 Sep 2018 07:03
DOI: 10.1007/s40505-018-0135-x
ISSN: 2196-1085

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