Template-Type: ReDIF-Paper 1.0
Author-Name: Martine Quinzii
Author-Name-First: Martine
Author-Name-Last: Quinzii
Author-Name: Michael Magill
Author-Name-First: Michael
Author-Name-Last: Magill
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Incentives and Risk Sharing in a Stock Market Equilibrium
Abstract: Economists hold two opposing views of the stock market: one focuses on the negative effect on incentives of separating ownership and control, the other emphasizes its beneficial role for risk sharing. Using a generalization of Diamond''s model which incorporates the effect of entrepreneurial incentives, we show how these two views can be reconciled. We introduce the concept of a stock market equilibrium with rational competitive price perceptions (RCPP) and show that such and equilibrium leads to a constrained optimal trade-off between risk sharing and incentives. We give examples showing the difference between RCPP equilibria and the standard CAPM type equilibria of finance.
Length: 40
File-URL: https://repec.dss.ucdavis.edu/files/Jq4tJH8Jfqi56GEvW39EvpCt/96-12.pdf
File-Format: application/pdf
Number: 3
Classification-JEL: 
KeyWords: 
Creation-Date: 20030107
Handle: RePEc:cda:wpaper:3