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In production economies with incomplete markets, shareholders disagree about optimal production plans, and there is no natural objective of the firm. From a normative perspective, the firm should choose plans… Click to show full abstract
In production economies with incomplete markets, shareholders disagree about optimal production plans, and there is no natural objective of the firm. From a normative perspective, the firm should choose plans that lead to a constrained Pareto efficient allocation. From a positive perspective, all decisions of the firm should be supported by a majority of shareholders. This paper asks whether one can design objectives for the firm that meet both normative and positive criteria. The answer is negative: Constrained efficient production plans would generically be turned down by a majority of shareholders. This finding is related to the generic nonexistence of Makowski equilibria.
Journal Title: Economic Theory
Year Published: 2017
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