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The Stock Market and the Theory of the Firm Under Price Uncertainty

Forsythe, Robert (1978) The Stock Market and the Theory of the Firm Under Price Uncertainty. Social Science Working Paper, 201. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20171020-170506344

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Abstract

The purpose of this paper is to reexamine the criterion of value maximization when price uncertainty is present. Whereas we wish to work within a perfectly competitive framework, we will make one alteration to the usual set of competitive assumptions. Since we wish to focus on behavior in an economy where risks may only be shared incompletely, we will restrict certain forms of entry into the capital market. Indeed, if we would allow unrestricted entry, we would expect to find that the market would soon possess the equivalent of a complete set of contingent claim markets. Individuals could easily accomplish this by trading in the separate contingent claim components of any existing stream of returns. To prevent this unpackaging, we will allow only a specific type of entry. Namely, we will allow entering firms to offer return functions from a predetermined set of functions. This set will include only those return functions which are initially present in the economy. This assumption precludes purely financial entry, but makes all existing technologies for the production of returns freely accessible.


Item Type:Report or Paper (Working Paper)
Additional Information:I wish to express my thanks to David Cass, Walter Dolde, and Milton Harris who served as my thesis committee. Any remaining errors are my responsibility.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:201
Record Number:CaltechAUTHORS:20171020-170506344
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20171020-170506344
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82564
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:24 Oct 2017 21:52
Last Modified:03 Oct 2019 18:55

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