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Endogenous firm objectives

Renstrom, T.; Yalcin, E.

Authors

E. Yalcin



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.

Citation

Renstrom, T., & Yalcin, E. (2003). Endogenous firm objectives. Journal of Public Economic Theory, 5(1), 67-94. https://doi.org/10.1111/1467-9779.00122

Journal Article Type Article
Publication Date 2003-01
Deposit Date Aug 19, 2008
Journal Journal of Public Economic Theory
Print ISSN 1097-3923
Electronic ISSN 1467-9779
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 5
Issue 1
Pages 67-94
DOI https://doi.org/10.1111/1467-9779.00122
Public URL https://durham-repository.worktribe.com/output/1564809

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