This gives the entrepreneur an incentive to retain equity and hence supply input. The entrepreneur may also be bound by an explicit incentive contract. In this framework, not all competitive equilibria can be inefficient only is the entrepreneur's optimal input is non-unique or exhibits positive income effects. We consider a model in which the market place is divided into T rounds of trading, with the arrival of consumers determined exogenously. Optimal prices remain constant when the aggregate supply and demand are known to the market maker, even if supplies and demands within individual rounds are not known.
Examples illustrate the endogenous determination of inventory holding costs.
This paper considers a securities market in which orders are channeled through professional broker-dealers such as London's market makers or the large banks operating on continental exchanges. It is shown that the dealers have an incentive to satisfy roughly half of their customers' orders from their own inventory if they are sure that orders are liquidity-motivated traders in the aggregate fall, but they rise for those traders who are unable to convince any dealer that they have no inside information. The liquidity of the main market worsens, even though its effective liquidity for customers whose orders are partly filled from broker-dealer inventories improves. Abstract Recent theories of corporate organization hold that mutually owned firms arise to remedy agency problems associated with ownership by a separate class of stockholders. We propose an alternative theory of mutuality, in which mutuals arise endogenously as a self-selection mechanism to cope with adverse selection and systemic risk.