WORKING PAPERS Ownership structure and control in incomplete market economies with transferable utility

We consider an economy with incomplete markets and a single firm and assume that utility can be freely transferred in the form of the initially available good 0 (quasilinearity). In this particularly simple and transparent framework, the objective of a firm can be defined as the maximization of the total utility of its control group C measured in units of good 0. We analyze how the size and the composition of C influences the firm’s market behavior and state conditions under which the firm sells its output at prices which are at, above, or below marginal costs, respectively. We discuss the assumption of competitive price perceptions and point out important differences between the concepts of a Drèze and of a GrossmanHart equilibrium that occur in spite of the close similarity of the formulas which define them. ∗This paper grew out of an extensive cooperation with Birgit Grodal, who passed away on May 4, 2004. She was Professor at the Økonomisk Institut, Københavns Universitet, Denmark. We would like to thank the participants of the micro jour fixe at the Institute for Advanced Studies in Vienna and the participants of the Workshop on General Equilibrium Theory in Krakow, June 2010. We are particularly grateful to Jacques Drèze and to Klaus Ritzberger for their valuable comments. †Institut für Höhere Studien, Stumpergasse 56, A-1060 Wien and Institut für Wirtschaftswissenschaften, Universität Wien, Hohenstaufengasse 9, A-1010 Wien, Austria