We propose a model of an incomplete markets economy with production, in which the firm acts as financial innovator by issuing claims against its stock. The firm’s objective is to maximize its adjusted value, which is the sum of the market value and the shareholders’ surplus from their trades in the stock markets. If a firm maximizes its adjusted value, then its financial policy is relevant (i.e...

Joseph E. Stiglitz Stanford University Stanford, CA This paper examines the impact of financial market imperfections on long-tenn productivity growth. It focuses on failures in markets for the sale of equity securities and hence on the failure of markets which help finns diversify the risks of real investment. The paper examines separately situations in which productivity growth is driven by le...

Pension reform is widely seen as essential in order to defuse the difficulties EU governments would otherwise face in respect of their social security pension systems in a context of population ageing. Particularly when such reform involves funding of future pensions, it may have radical implications for European financial markets, entailing important changes in the demand for financial assets ...