Production in Incomplete Markets: Expectations Matter for Political Stability

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.incomplete markets; super majority voting; political (in)stability; selfulfilling expectations

Majority Stable Production Equilibria: A Multivariate Mean Shareholders Theorem

In a simple parametric general equilibrium model with S states of nature and K · S ¯rms |and thus potentially incomplete markets|, rates of super majority rule ½ 2 [0; 1] are computed which guarantee the existence of ½{majority stable production equilibria: within each ¯rm, no alternative production plan can rally a proportion bigger than ½ of the shareholders, or shares (depending on the governance), against the equilibrium. Under some assumptions of concavity on the distributions of agents' types, the smallest ½ are shown to obtain for announced production plans whose span contains the ideal securities of all K mean shareholders. These rates of super majority are always smaller than Caplin and Nalebu® (1988, 1991) bound of 1¡1=e ¼ 0:64. Moreover, simple majority production equilibria are shown to exist for any initial distribution of types when K = S ¡1, and for symmetric distributions of types as soon as K ¸ S=2

Ideology and existence of 50% majority equilibria in Multidimensional spatial voting Models .

When aggregating individual preferences through the majority rule in an n-dimensional spatial voting model, the ‘worst-case’ scenario is a social choice configuration where no political equilibrium exists unless a super-majority rate as high as 1 — 1/(n+1) is adopted. In this paper we assume that a lower d-dimensional (dideology, mean voter theorem, spatial voting, super majority;

Aggregation of Coarse Preferences

We consider weak preference orderings over a set An of n alternatives. An individual preference is of refinement ≤ n if it first partitions An into subsets of ‘tied’ alternatives, and then ranks these subsets within a linear ordering. When < n, preferences are coarse. It is shown that, if the refinement of preferences does not exceed , a super majority rule (within non-abstaining voters) with rate 1 − 1/ is necessary and sufficient to rule out Condorcet cycles of any length. It is argued moreover how the coarser the individual preferences, (1) the smaller the rate of super majority necessary to rule out cycles ‘in probability’; (2) the more probable the pairwise comparisons of alternatives, for any given super majority rule

Production in incomplete markets: Expectations matter for political stability.

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.

Portfolio diversification and internalization of production externalities through majority voting

In absence of markets for externalities, the authors look for governances and conditions under which majority voting among shareholders is likely to give rise to efficient internalization. The central and natural role played by a governance of stakeholders is underlined and benchmarked.Production externalities; majority voting; portfolio diversification; general equilibrium; stakeholder governance; mean voter

Voting in Assemblies of Shareholders and Incomplete Markets

An economy with two dates is considered, one state at the first date and a finite number of states at the last date. Shareholders determine production plans by voting — one share, one vote — and at ?-majority stable stock market equilibria, alternative production plans are supported by at most ? × 100 percent of the shareholders. It is shown that a ?-majority stable stock market equilibrium exists if ? = S - J S - J + 1 , where S is the number of states at the last date and J is the number of firms. Moreover, an example shows that ?-majority stable stock market equilibrianeed not exist for smaller ?’s.general equilibrium; incomplete markets; firms, voting

Aggregation of multiple prior opinions.

Experts are asked to provide their advice in a situation of uncertainty. They adopt the decision maker’s utility function, but each has a potentially different set of prior probabilities, and so does the decision maker. The decision maker and the experts maximize the minimal expected utility with respect to their sets of priors. We show that a natural Pareto condition is equivalent to the existence of a set Λ of probability vectors over the experts, interpreted as possible allocations of weights to the experts, such that (i) the decision maker’s set of priors is precisely all the weighted-averages of priors, where an expert’s prior is taken from her set and the weight vector is taken from Λ; (ii) the decision maker’s valuation of an act is the minimal weighted valuation, over all weight vectors in Λ, of the experts’ valuations.Aggregation of opinions, Ambiguity, Multiple priors;

Incomplete Financial Markets and Jumps in Asset Prices

A dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are incomplete, jumps in asset prices may be unavoidable. Consequently incomplete financial markets may increase volatility in asset prices significantly.general equilibrium; financial markets; jumps in asset prices

The Probability of Condorcet Cycles and Super-Majority Rules

Majority voting aggregates individual preference profiles into a binary relation on the set of alternatives. Condorcet cycles are cycles of the aggregated binary relation. We show that the relative volume of the subset of the (n!−1)-simplex that represents profile distributions such that the aggregated preferences display Condorcet cycles is a decreasing function of the super majority levelτbounded by the expressionThis expression shows that Condorcet cycles become rare events for super majority rules larger than 53%