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Contracts and markets

Citation

Maretto, Guido Tulio Andrea (2010) Contracts and markets. Dissertation (Ph.D.), California Institute of Technology. http://resolver.caltech.edu/CaltechTHESIS:05282010-090118586

Abstract

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)
Research Advisor(s):
  • Ledyard, John O.
Thesis Committee:
  • Ledyard, John O. (chair)
  • Echenique, Federico
  • Cvitanic, Jaksa
Defense Date:September 2009
Record Number:CaltechTHESIS:05282010-090118586
Persistent URL:http://resolver.caltech.edu/CaltechTHESIS:05282010-090118586
Default Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:5876
Collection:CaltechTHESIS
Deposited By: Guido Maretto
Deposited On:04 Jun 2010 16:35
Last Modified:26 Dec 2012 03:26

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