Shareholder heterogeneity, asymmetric information, and the equilibrium manager

Consider a firm owned by shareholders with heterogeneous beliefs and discount rates who delegate to manager the choice of production plan. The can trade contingent claims in complete asset market. Shareholders cannot observe chosen plan design compensation scheme so that at equilibrium chooses they prefer reveals it truthfully. We show (i) profit is maximized, (ii) gets constant share production, (iii) she has no incentive trade. then such exists if only same belief rate as representative shareholder. This allows us characterize required characteristics function shareholders’ characteristics.