In a perfectly competitive general equilibrium model with many periods, incomplete markets, and trading through time, we show: (a) current net market value maximization is unanimously favoured by shareholders as the objective of the firm (b) this corresponds to maximizing a relatively simple present discounted value formula (c) the formula is used to derive an Arrow-lind-type result on the absence of a risk premium in the discount factors for valuing investments whose risk is uncorrelated with social risk (d) competitive stock markets are constrained Pareto optimal in the sense of Diamond. Suppose that a perfectly competitive firm wishes to determine its intertemporal produc-tion-and-investment plan in accordance with its shareholders ' interests. Will it be able to satisfy this desideratum? And if so, what course should it pursue? In a general equilibrium model with many periods, uncertainty, incomplete markets, and trading through time, we show that 1. All initial shareholders of a perfectly competitive firm will wish that firm to choose a production-and-investment plan that maximizes its current net market value

Some recent developments in the theory of competitive stock markets are discussed and illustrated in this paper, using simple examples. These developments challenge the central role played by in the literature dealing with unanimity among shareholders. Harry DeAngelo's 1981 article gives a clear account of some popular views about the central importance of spanning, and is used to focus my presentation. In DeAngelo's article, there are three basic claims: (a) If all initial shareholders in a firm have perfectly competitive conjectures and there is spanning, net market value maximization will be unanimously favored by initial shareholders as the objective of the firm whether or not there are short sales of the firm's shares (perfect competition plus spanning imply unanimity). (b) Perfectly competitive conjectures only make sense when there is spanning (perfect competition implies spanning). (c) For perfectly competitive conjectures to be correct, there must not only be spanning, but also constant returns to scale, and hence zero profits (profits are inconsistent with perfect competition). In this paper, I show that claim (a) can be true even without spanning. In particular, (i) If all initial shareholders in a firm have correct and perfectly competitive conjectures, then net market value maximization will be unanimously favored by them as the objective of the firm, at least if there are no short sales of the firm's shares by initial shareholders (perfect competition, with or without spanning, implies unanimity). (ii) Claim (b) above is false; that is, perfect competition can exist without spanning. (iii) Claim (c) is false, whether or not there is spanning; that is, positive profits and perfect competition are perfectly consistent. Since the assumption of spanning is tantamount to the assumption of complete markets (for example, if there is free disposal plus spanning then markets are complete (D. M. Kreps, 1979), assertion (i) significantly extends the scope of the unanimity result. In particular, it extends the result to environments with incomplete markets in which firms market unique securities. Assertion (ii) shows such environments exist, and (iii) shows they can be nontrivial, that is, ones in which shareholders care about the firm's objective beyond whether or not the objective implies nonnegative profits. Assertions (i)-(iii) are easily demonstrated once it is realized that the old textbook maxim-for perfect competition there must be many buyers and sellers of a commodity (for example, a particular type of security)-is simply false. While many buyers and sellers may be sufficient for perfect competition, it is not necessary. Indeed, (iv) There may be only one seller of a commoditywithout any good substitutes -yet that seller will face a perfectly elastic demand if he is small relative to his market. The import of (iv) is that spanning is basically irrelevant for perfect competition;'

From the perspective of the Walrasian general equilibrium model, entrepreneurial and opportunistic behavior seems foreign. Can the model be refashioned so that it can accommodate such behavior? Many would say no, but we argue the contrary. Indeed, we present a reformulation of the model that serves as a gateway to, rather than a detour from, such contemporary issues as innovation and incentives. The trick is to reexamine what perfect competition means. Starting with an historical summary of general equilibrium, we sketch an image of the perfect competitor as an active market opportunist, seeking out profit potentials wherever he can.

The first theorem of welfare economics rests on the assumption that individuals have neither price-making nor market-making capacities. The authors offer a revision in which individuals have such capacities. The revision emphasizes two keys for market efficiency: the need to align private rewards with social contributions--called full appropriation--and the need for an assumption to counter the possibility of coordination failures in the choice of produced commodities--called noncomplementarity. The authors also emphasize that information about prices of unmarketed commodities involves decentralized knowledge available only to product innovators and that pecuniary externalities are important potential sources of market failure. Copyright 1995 by American Economic Association.

The First Theorem of Welfare Economics rests on the assumption that individuals have neither price-making nor market-making capacities. We offer a revision in which individuals have such capacities. The revision emphasizes two keys for market efficiency: (i) the need to align private rewards with social contributions--called full appropriation, and (ii) the need for an assumption to counter the possibility of coordination failures in the choice of produced commodities--called noncomplementarily. We also emphasize that information about prices of unmarketed commodities involves decentralized knowledge available only to product innovators and that pecuniary externalities are important potential sources of market failure.