Production and financial policies under asymmetric information |
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Authors: | Jacques H Drèze Enrico Minelli Mario Tirelli |
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Institution: | (1) CORE, Université Catholique de Louvain, 34 Voie du Roman Pays, 1348 Louvain-la-Neuve, Belgium;(2) Università degli Studi di Brescia, Via San Faustino 74b, 25122 Brescia, Italy;(3) Università degli Studi Roma Tre, Via S. D’Amico 77, 00145 Rome, Italy |
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Abstract: | We propose an extension of the standard general equilibrium model with production and incomplete markets to situations in
which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited
information on the preferences of individual shareholders. The extension is obtained by the assumption that firms are not
traded directly but grouped into ‘sectorial’ funds. In our model the financial policy of the firm is not irrelevant. We establish
the existence of equilibria and discuss the nature of the inefficiencies introduced by the presence of asymmetric information.
We also illustrate the properties of the model in three simple examples.
We would like to thank Alberto Bisin, Armando Dominioni, Piero Gottardi, Tito Pietra, Paolo Siconolfi, and an anonymous referee
for useful suggestions and comments. |
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Keywords: | Decision-making under uncertainty Asymmetric and private information Incomplete markets Equilibrium |
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