Production in incomplete markets: expectations matter for political stability
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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.
Originalsprog | Engelsk |
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Tidsskrift | Journal of Mathematical Economics |
Vol/bind | 45 |
Udgave nummer | 3-4 |
Sider (fra-til) | 212-222 |
Antal sider | 11 |
ISSN | 0304-4068 |
DOI | |
Status | Udgivet - 2009 |
Bibliografisk note
JEL classification: D21, D52, D71, D72
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ID: 11711487