An Application of Convex Analysis to General Equilibrium Theory with Incomplete Financial Markets

DOI: 10.5176/2251-3388_2.1.24

Authors: Pascal Christian Stiefenhofer

Abstract:

This paper considers an application of convex analysis to the study of corporate equilibria in a two period endogenized asset general equilibrium model with incomplete financial markets. It shows by means of a particular case study that for a fixed financial policy every extensive form stock market equilibrium can be translated into a reduced form equilibrium. This result suggests determinateness of corporate equilibria for varying financial parameters. A change in the firm’s financial policy changes the production set available to it in the next period, hence real effects.

Keywords: General Convex, Analysis Equilibrium Financial Marlets