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Dierker, Egbert
Year of Publication: 
Series/Report no.: 
IHS Economics Series 327
This paper focuses on a single firm with constant returns to scale in a multi-period setting with incomplete markets and a single good per state. Profits vanish whenever the firm maximizes profits with respect to a given price system. The paper addresses the following question: Shall the firm always act as a price taker? In the case of a partnership, there are no initial shares and no profits accrue from production. A corporation, however, has initial shareholders and can sell its output at any price. An example shows that this additional freedom can improve efficiency and welfare. This results from the fact that a wedge between price and cost can mitigate the inefficiency caused by the consumers who disregard the impact of their initial portfolio decisions on subsequent markets.
multi-period economies with incomplete markets
partnerships and corporations
competitive price perceptions
the role of initial shares
the objective of a firm
efficiency and social welfare
Document Type: 
Working Paper
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