Maretto, Guido Tulio Andrea (2010) Contracts and markets. Dissertation (Ph.D.), California Institute of Technology. http://resolver.caltech.edu/CaltechTHESIS:05282010-090118586
I merge the standard Principal Agent model with a CAPM-type financial market, to study the interactions of contracts and financial markets. I prove existence of equilibrium in two models, a more general economy allowing for hidden type and action under generic mean variance preferences and a hidden action economy with Markowitz mean-variance preferences. I study economies for which markets have an insurance effect on compensation contracts. I show sufficient conditions for lower variance to obtain in large economies, even with asymmetric information. In this context I show the effect of markets' size on efficiency. I also study moral hazard economies, for which I prove existence of a unique pure strategy equilibrium, and I show that financial markets negatively affect the equilibrium returns of firms. In the final chapter I study the efficiency of securities issued under symmetric information. I find that small markets and low correlation of firms' returns generate inefficiency. I also show that the assumption of symmetry or independence is crucial to obtaining the insurance results in the previous Chapters.
|Item Type:||Thesis (Dissertation (Ph.D.))|
|Subject Keywords:||Economics, Finance|
|Degree Grantor:||California Institute of Technology|
|Division:||Humanities and Social Sciences|
|Major Option:||Social Science|
|Thesis Availability:||Public (worldwide access)|
|Defense Date:||September 2009|
|Default Usage Policy:||No commercial reproduction, distribution, display or performance rights in this work are provided.|
|Deposited By:||Guido Maretto|
|Deposited On:||04 Jun 2010 16:35|
|Last Modified:||26 Dec 2012 03:26|
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