Production in Incomplete Markets: Expectations Matter for Political Stability
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Production in Incomplete Markets : Expectations Matter for Political Stability. / Crès, Hervé; Tvede, Mich.
Department of Economics, University of Copenhagen, 2009.Research output: Working paper › Research
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TY - UNPB
T1 - Production in Incomplete Markets
T2 - Expectations Matter for Political Stability
AU - Crès, Hervé
AU - Tvede, Mich
N1 - JEL classification: D21, D52, D71, D72
PY - 2009
Y1 - 2009
N2 - AbstractIn 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 selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
AB - AbstractIn 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 selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
KW - Faculty of Social Sciences
KW - super majority voting
KW - political (in)stability
KW - self-fulfilling expectations
M3 - Working paper
BT - Production in Incomplete Markets
PB - Department of Economics, University of Copenhagen
ER -
ID: 10162456