Production in Incomplete Markets: Expectations Matter for Political Stability
Publikation: Working paper › Forskning
Dokumenter
- DP 09-01
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Abstract
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 selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
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 selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
Originalsprog | Engelsk |
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Udgiver | Department of Economics, University of Copenhagen |
Antal sider | 20 |
Status | Udgivet - 2009 |
Bibliografisk note
JEL classification: D21, D52, D71, D72
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