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Collective Decision Mechanisms and Efficient Stock Market Allocations: Existence of a Participation Equilibrium

Forsythe, Robert and Suchanek, Gerry L. (1981) Collective Decision Mechanisms and Efficient Stock Market Allocations: Existence of a Participation Equilibrium. Social Science Working Paper, 371. California Institute of Technology , Pasadena, CA. https://resolver.caltech.edu/CaltechAUTHORS:20171005-170047641

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Abstract

The recent literature on economies with an incomplete set of markets has been devoted to the study of the efficiency properties of collective stockholder decision mechanisms for guiding the behavior of firms when the restrictive Ekern-Wilson spanning condition is not satisfied. The results have been essentially negative; a majority voting rule and controlling interest rules will not yield efficient equilibrium allocations in general. However, in a recent paper, Helpman and Razin (1978) suggested a decision rule that assures constrained Pareto optimality of equilibrium allocations. Their rule is patterned on the recent contributions to the theory of incentive compatibility. In this paper, we show that an equilibrium relative to the Helpman-Razin Mechanism rarely exists, making their optimality result essentially vacuous. We then demonstrate that an equilibrium does exist in general relative to the Shared Cost Mechanism developed by Hurwicz (1976), and that all equilibrium allocations in the Helpman-Razin model are constrained Pareto optima. Finally, we suggest that the optimality of equilibrium allocations is as much a consequence of how technology is modeled as of the incentives induced by the decision mechanism. Existence, on the other hand, is very sensitive in general to the decision mechanism adopted.


Item Type:Report or Paper (Working Paper)
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http://resolver.caltech.edu/CaltechAUTHORS:20171117-133739101Related ItemPublished Version
Additional Information:Revised. Published as Forsythe, Robert, and Gerry L. Suchanek. "Collective decision mechanisms and efficient stock market allocations: existence of a participation equilibrium." International Economic Review (1984): 21-43.
Group:Social Science Working Papers
Subject Keywords:Shareholders, Market economies, Economic costs, Market equilibrium, Stock ownership, Consumer economics, Stock markets, Cost allocation, Nash equilibrium, Economic models
Series Name:Social Science Working Paper
Issue or Number:371
Record Number:CaltechAUTHORS:20171005-170047641
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20171005-170047641
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82142
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:06 Oct 2017 17:28
Last Modified:03 Oct 2019 18:51

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