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Title: Issues on Integrating Real and Financial Decisions
Authors: Mirman, Leonard J.
Salgueiro, Egas M.
Santugini, Marc
Keywords: Existence of Equilibrium
Financial sector
Firm Behavior
Market power
Nash equilibrium
Perfect competition
Publicly-traded firm
Risk aversion
Risk taking
Shareholder behavior
Stackelberg equilibrium
Issue Date: 2013-09
Series/Report no.: Cahiers du CIRPÉE;13-33
Abstract: We study the issue of integrating real and financial decisions in the monopoly framework. To that end, we combine the decisions of the firm with the decisions of the shareholders. When the managing shareholder chooses production, risk allocation, and the total number of shares for the risky asset, we show that there is no Nash equilibrium with a competitive financial market. Existence is reestablished under various restrictions on the set for the total number of shares. Moreover, there exists a Stackelberg equilibrium when the managing shareholder is the leader. In addition to discussing the issue of existence, we compare the equilibrium outcomes for each restriction we impose.
Appears in Collections:Cahiers de recherche du CIRPÉE

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