Production in incomplete markets: expectations matter for political stability

Publikation: Bidrag til tidsskriftTidsskriftartikelfagfællebedømt

  • Hervé Crès
  • Mich Tvede
In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
OriginalsprogEngelsk
TidsskriftJournal of Mathematical Economics
Vol/bind45
Udgave nummer3-4
Sider (fra-til)212-222
Antal sider11
ISSN0304-4068
DOI
StatusUdgivet - 2009

Bibliografisk note

JEL classification: D21, D52, D71, D72

ID: 11711487