TY - JOUR
T1 - Production in incomplete markets
T2 - Expectations matter for political stability
AU - Crès, Hervé
AU - Tvede, Mich
N1 - Funding Information:
Hervé Crès would like to thank the Fondation HEC for financial support. Mich Tvede would like to thank the Danish Research Councils.
PY - 2009/3/20
Y1 - 2009/3/20
N2 - 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 self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
AB - 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 self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.
KW - Incomplete markets
KW - Political (in)stability
KW - Self-fulfilling expectations
KW - Super majority voting
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U2 - 10.1016/j.jmateco.2008.09.005
DO - 10.1016/j.jmateco.2008.09.005
M3 - Article
AN - SCOPUS:60449119897
SN - 0304-4068
VL - 45
SP - 212
EP - 222
JO - Journal of Mathematical Economics
JF - Journal of Mathematical Economics
IS - 3-4
ER -