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    A Consistent Firm Objective When Markets are Incomplete: Profit Maximization

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    Sabarwal_Consistent Firm Objective.pdf (194.8Kb)
    Issue Date
    2004-08-11
    Author
    Sabarwal, Tarun
    Publisher
    Econometric Society
    Type
    Working Paper
    Is part of series
    Econometric Society 2004 North American Summer Meetings;141
    Published Version
    http://EconPapers.repec.org/RePEc:ecm:nasm04:141
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    Abstract
    In economies with private firm ownership, when markets are incomplete, and firm shareholders change over time, there is no broad agreement on what ought to be a firm's objective. It is shown that ex-post, profit maximization is consistent with shareholder preferences in such economies; that is, along the equilibrium path, in every period and state of the world, every coalition of a firm's shareholders in that period and state approves a profit-maximizing production plan. This result is shown using natural assumptions about shareholder preferences and shareholder control, and it applies to cases when shareholders within a firm and across firms can form coalitions, and when stock trading can be ex-dividend or cum-dividend, and with a combination of both. This result can help provide a foundation for formulating a theory of the firm when markets are incomplete; a theory based on primitives of shareholder preferences and shareholder control that are to be necessarily satisfied in economies with private firm ownership.
    URI
    http://hdl.handle.net/1808/9188
    Collections
    • Economics Scholarly Works [185]
    Citation
    Sabarwal, Tarun. (2004) A Consistent Firm Objective When Markets are Incomplete: Profit Maximization, Econometric Society 2004 North American Summer Meetings, Econometric Society.

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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