Capital market equilibrium with moral hazard and flexible technology

(Magill, M., Quinzii, M., 2002. Capital market equilibrium with moral hazard. Journal of Mathematical Economics 38, 149–190) showed that, in a stockmarket economy with private information, the moral hazard problem may be resolved provided that a spanning overlap condition is satisfed. This result de...

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Bibliographic Details
Published inJournal of mathematical economics Vol. 42; no. 3; pp. 358 - 363
Main Authors Quiggin, John, Chambers, Robert G.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.06.2006
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Mathematical Economics
Subjects
Capital market
Capital market equilibrium
Capital markets
Correlation analysis
Economic theory
Equilibrium
Flexible technology
Market equilibrium
Mathematical methods
Moral hazard
Stochastic models
Studies
Technology
Capital market equilibrium
Flexible technology
Moral hazard
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Summary:(Magill, M., Quinzii, M., 2002. Capital market equilibrium with moral hazard. Journal of Mathematical Economics 38, 149–190) showed that, in a stockmarket economy with private information, the moral hazard problem may be resolved provided that a spanning overlap condition is satisfed. This result depends on the assumption that the technology is given by a stochastic production function with a single scalar input. The object of the present paper is to extend the analysis of Magill and Quinzii to the case of multiple inputs. We show that their main result extends to this general case if and only if, for each firm, the number of linearly independent combinations of securities having payoffs correlated with, but not dependent on, the firms output is equal to the number of degrees of freedom in the firm’s production technology.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-4068
1873-1538
DOI:10.1016/j.jmateco.2005.08.008