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Volume 3, No. 1,
April 2004
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Investment
Decisions and Normalization with Incomplete Markets: A
Pitfall in Aggregating Shareholders' Preferences
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Luigi
Ventura
*
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Dipartimento di Scienze Economiche, Università La
Sapienza, Italy
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Abstract
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Profit maximization is not a well defined objective when
markets are incomplete. Several criteria of investment
choice have therefore been put forward in the literature,
some of which crucially hinge upon aggregation of
shareholders' preferences, as is the case with the
criteria proposed by Drèze (1974) and Grossman and Hart
(1979). This note shows that these criteria are
normalization dependent, i.e., their outcome depends on
the good chosen to express individuals' marginal rates of
substitution.
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Key words
:
investment decisions;
normalization; incomplete markets
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JEL classification
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D52; D70; D81
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