Shareholder-efficient production plansin a multi-period economy

We propose an ob jective for the firm in a general model of production economies extending overtime under uncertainty and with incomplete markets. Trading in commodities and shares of stockoccurs sequentially on spot markets at all date-events. We derive the objective of the firm from theassumption of initial-shareholders efficiency. Each shareholder is assumed to communicate to thefirm her marginal valuation of profits at all date events (expressed in terms of initial resources). Indefining her own marginal valuation of the firm’s profits, a shareholder will take two elements intoconsideration. To evaluate the direct impact of a change in dividends the shareholder uses her ownvector of marginal rates of substitution for revenue across date-events. In addition, the shareholderwill take into account the impact of future dividends on the firm’s stock price when she trades shares.To predict the effect on the stock price, she uses a (possibly different) state price process, her pricetheory. The only restriction that we impose on consumers’ price theories is that they should becompatible with the observed equilibrium: given the equilibrium prices and production plans, a pricetheory must satisfy a no-arbitrage condition. The firm computes its own shadow prices for profits atall date-events by simply adding up the marginal valuations of all its initial shareholders. We proveexistence of an equilibrium....