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A general equilibrium approach to decision criteria for business firms. Investment decisions and labor management under incomplete markets

Objective



The objective of the project is to analyze firm's behavior in an uncertain environment considering two major choices: production plans and labor contracts. The economy under consideration is characterised by incompleteness of asset markets, which means that firms cannot be insured against all kinds of future uncertainty because some financial assets are missing from the market. In particular, the project will deal with three interrelated themes:
1. The efficiency of competitive equilibrium investment decisions from a welfare point of view and from the point of view of the firm's shareholders. In both cases, equilibrium allocations are generically inefficient however there is room for Pareto improving policies. 2. The incorporation of agents strategic behavior in the stock market by assigning control rights to shares. Portfolios aiming at the control of a firm may be seen as an alternative and supplementary viewpoint - apart from the purely financial one - for explaining price formulations. This issue is closely related to firm's investment decisions in the absence of unanimity among shareholders.
3. The introduction of labor inputs in models with technological uncertainty. In this setup, the existence and the properties of equilibria defined simultaneously for the stock market, the markets for labor contracts, and the decentralised decisions of firms and households are studied. Macroeconomnic extensions of such models and policy implications can also be derived.

Funding Scheme

RGI - Research grants (individual fellowships)

Coordinator

UNIVERSITE CATHOLIQUE DE LOUVAIN
Address
34,Voie Du Roman Pays 34
1348 Louvain-la-neuve
Belgium

Participants (1)

Not available
Greece