Capital market equilibrium with moral hazard (Q1867767)

The referred paper contributes to the analysis of equilibria of an economy with production under uncertainty. Namely, the balance of two views on the problem respecting the form of the stock market and from the corporate form of organization is desired. The main concept suggested for this purpose is the one of an equilibrium with rational, competitive price perception, in which investors correctly anticipate the optimal effort of enterpreneurs by observing their financial decisions and, on the other hand, enterpreneurs are aware that investors use their financial decisions as signals. The competitiveness of the equilibrium valuation is generated by the fact that enterpreneurs cannot affect the market price of risk. The main results show under which assumptions an equilibrium with rational, competitive price perception is constrained Pareto optimal, and under which assumption an optimality can be obtained.