Endogenous Firm Objectives

Title
Endogenous Firm Objectives
Publication Date
2003
Author(s)
Yalcin, Erkan
Renstrom, Thomas I
Type of document
Journal Article
Language
en
Entity Type
Publication
Publisher
Wiley-Blackwell Publishing, Inc
Place of publication
United Kingdom
DOI
10.1111/1467-9779.00122
UNE publication id
une:5834
Abstract
We analyze the behavior of a monopolistic firm in general equilibrium when the firm's decisions are taken through shareholder voting. We show that, depending on the underlying distribution, rational voting may imply overproduction as well as underproduction, relative to the efficient level. Any initial distribution of shares is an equilibrium, if individuals do not recognize their influence on voting when trading shares. However, when they do, and there are no short-selling constraints, the only equilibrium is the efficient one. With short-selling constraints typically underproduction occurs. It is not market power itself causing underproduction, but the inability to perfectly trade the rights to market power.
Link
Citation
Journal of Public Economic Theory, 5(1), p. 67-94
ISSN
1467-9779
1097-3923
Start page
67
End page
94

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