Not logged in.
Quick Search - Contribution
Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Financial intermediation and the welfare theorems in incomplete markets |
| Organization Unit | |
| Authors |
|
| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
|
| Journal Title | Economic Theory |
| Publisher | Springer |
| Geographical Reach | international |
| ISSN | 0938-2259 |
| Volume | 73 |
| Number | 2-3 |
| Page Range | 457 - 486 |
| Date | 2022 |
| Abstract Text | In production economies with incomplete markets, shareholders disagree about the objective of the firm. We show that a weak financial intermediary, who is unable to complete markets, can offer just enough spanning to resolve this disagreement. The intermediary is limited to offering one customized contract per consumer. Knowledge of demand functions is sufficient for offering the right contracts. Once agreement among shareholders is reached, productive efficiency is restored, which in turn permits a Pareto efficient market outcome. This result shows that the first welfare theorem does not depend on complete spanning, but merely on institutions that provide the right span. However, this cannot be said about the second welfare theorem: For some wealth distributions, equilibria with transfers fail to exist due to nonconvexities caused by market incompleteness. |
| Free access at | DOI |
| Official URL | https://link.springer.com/article/10.1007/s00199-020-01294-w |
| Digital Object Identifier | 10.1007/s00199-020-01294-w |
| Other Identification Number | merlin-id:19549 |
| PDF File |
Download from ZORA
|
| Export |
BibTeX
EP3 XML (ZORA)
|
| Keywords | Economics and Econometrics |
| Additional Information | Financial Economics |