Firms as Clubs in Walrasian Markets with Private Information

FRB Richmond Working Paper No. 00-8

60 Pages Posted: 27 Nov 2012

See all articles by Edward S. Prescott

Edward S. Prescott

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Robert M. Townsend

MIT - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2000

Abstract

Using private information and club theories, this paper develops a theory of firms in general equilibrium. Firms are defined to be assignments of technologies and agents to clubs. In equilibrium, firms form endogenously and multiple types may co-exist. We formulate the general equilibrium problem as both a Pareto program and as a competitive equilibrium. Welfare and existence theorems are provided. In the competitive equilibrium, club memberships are priced and purchased, so the market determines which organizations exist as well as who is a member. Pareto optima and competitive equilibria of several examples are computed. In our examples, elements of limited commitment and monitoring capabilities are important factors that affect both the internal organization of firms and their equilibrium distribution. Furthermore, equilibrium organizational structure varies with the aggregate endowment of capital and the distribution of wealth.

Keywords: private information, general equilibrium, clubs, theory of the firm

JEL Classification: D51, D71, D82, L20

Suggested Citation

Prescott, Edward (Ned) Simpson and Townsend, Robert M., Firms as Clubs in Walrasian Markets with Private Information (September 8, 2000). FRB Richmond Working Paper No. 00-8. Available at SSRN: https://ssrn.com/abstract=2126767 or http://dx.doi.org/10.2139/ssrn.2126767

Edward (Ned) Simpson Prescott (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

P.O. Box 6387
Cleveland, OH 44101
United States

HOME PAGE: http://https://www.clevelandfed.org/people-search?pid=f8ca941e-4b51-41f6-95f8-c87f1d3806e5

Robert M. Townsend

MIT - Department of Economics ( email )

Bldg. E52-252c
50 Memorial Drive
Cambridge, MA 02142
United States
617-452-3722 (Phone)
617-253-1330 (Fax)

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