TY - JOUR

T1 - Capital market equilibrium with moral hazard and flexible technology

AU - Quiggin, J.

AU - Chambers, Robert

PY - 2006

Y1 - 2006

N2 - (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. (c) 2006 Elsevier B.V. All rights reserved.

AB - (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. (c) 2006 Elsevier B.V. All rights reserved.

U2 - 10.1016/j.jmateco.2005.08.008

DO - 10.1016/j.jmateco.2005.08.008

M3 - Article

SN - 0304-4068

VL - 42

SP - 358

EP - 363

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

ER -