Abstract : A simple parametric general equilibrium model with S states of nature
and K < S firms is considered. Since markets are incomplete, at a (financial) equilibrium
shareholders typically disagree on whether to keep or not the status quo
production plans. Hence each firm faces a genuine problem of social choice. The
setup proposed in the present paper allows to study these problems within a classical
(Downsian) spatial voting model. Given the multidimensional nature of the
latter, super majority rules with rate ρ ∈ [1/2, 1] are needed to guarantee existence
of politically stable production plans. A simple geometric argument is proposed
showingwhy a 50%-majority stable production equilibrium exists when K = S−1.
When the degree of incompleteness is more severe, under more restrictive assumptions
on agents’ preferences and the distribution of agents’ types, equilibria are
shown to exist for rates ρ smaller than Caplin and Nalebuff (Econometrica 59:
1–23, 1991) bound of 0.64: they obtain for production plans whose span contains
the ‘ideal securities’ of all K mean shareholders.