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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 |
| JEL
classification:
D52; D70; D81 |
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