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.
In: Journal of Mathematical Economics, Vol. 45, No. 3-4, 2009, p. 212-222.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
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 - 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.
AB - 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.
KW - Faculty of Social Sciences
KW - super majority voting
KW - self-fulfilling expectations
U2 - 10.1016/j.jmateco.2008.09.005
DO - 10.1016/j.jmateco.2008.09.005
M3 - Journal article
VL - 45
SP - 212
EP - 222
JO - Journal of Mathematical Economics
JF - Journal of Mathematical Economics
SN - 0304-4068
IS - 3-4
ER -
ID: 11711487