An Application of Convex Analysis to General Equilibrium Theory with Incomplete Financial Markets

Abstract

This paper considers an application of convex
analysis to the study of corporate equilibria in a two period
endogenized asset general equilibrium model with incomplete
financial markets. It shows by means of a particular case study
that for a fixed financial policy every extensive form stock
market equilibrium can be translated into a reduced form
equilibrium. This result suggests determinateness of corporate
equilibria for varying financial parameters. A change in the
firm’s financial policy changes the production set available to it
in the next period, hence real effects.