Majority Stable Production Equilibria: A Multivariate Mean Shareholders Theorem

Abstract

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