Discussion: The Impossibility of Efficient Decision Rules for Firms in Competitive Stock Market Economies

Extract

This paper serves as an intuitive companion piece to a more technical paper in which Forsythe and Suchanek (F–S) introduce a model which demonstrates “the impossibility of efficient decision rules for firms in competitive stock market economies.” F–S are to be commended for undertaking this effort. The major theme of this paper appears to be that “inefficient equilibria are generic to competitive stock market economies.” This is contrary to the general belief that not only do complete financial markets but also a wide variety of incomplete financial markets guarantee efficient financial equilibria. The F–S model claims to demonstrate otherwise.