Capital market equilibrium with moral hazard and flexible technology

Quiggin, John and Chambers, Robert G. (2006) Capital market equilibrium with moral hazard and flexible technology. Journal of Mathematical Economics, 42 3: 358-363. doi:10.1016/j.jmateco.2005.08.008

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Author Quiggin, John
Chambers, Robert G.
Title Capital market equilibrium with moral hazard and flexible technology
Journal name Journal of Mathematical Economics   Check publisher's open access policy
ISSN 0304-4068
Publication date 2006-06
Sub-type Article (original research)
DOI 10.1016/j.jmateco.2005.08.008
Volume 42
Issue 3
Start page 358
End page 363
Total pages 6
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Collection year 2006
Language eng
Subject C1
720199 Macroeconomic issues not elsewhere classified
340101 Microeconomic Theory
Abstract (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.
Keyword Capital market equilibrium
Moral hazard
Flexible technology
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

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Created: Wed, 15 Aug 2007, 08:29:10 EST