Abstract
This chapter discusses the role of a stock market in a general equilibrium model with technological uncertainty. Moving from the certainty model of general equilibrium to one with uncertainty, the constructors of the model with contingent commodity markets have given considerable insight into the problems of uncertainty for an economy. An important element in any model involving uncertainty is the source of probabilities used in decision making and the ultimate location of risk-bearing. In the contingent commodity model, firms bear no risks in the sense that no probability distributions are needed to calculate firm decision rules or profits accruing to firm owners, and all risks are borne by consumers. Paralleling the contingent commodity model, however, firms planning production to maximize stock market value employ no probabilities in their calculations, relying instead on determinate, concurrent market phenomena, the prices inherent in the stock market.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call