This paper incorporates a model of corporate control into a general eq
uilibrium framework for production economies with incomplete markets.
The classical objective of value maximization is extended, but is inde
terminate. Instead, firms are viewed as being subject to shareholder c
ontrol via some decision mechanism. As long as this decision mechanism
is responsive to a unanimous preference by shareholders, shareholder
control is consistent with but stronger than value maximization. Next,
the particular institution of majority voting by shareholders is exam
ined. It is shown that for generic economies, a majority rule equilibr
ium for a firm implies that production is optimal for the largest, or
dominant, shareholder. Finally, a more realistic control mechanism is
considered in which majority voting by shareholders is constrained by
a group of shareholders, or Board of Directors, who control the voting
agenda. The result is that shareholders not on the Board have no infl
uence on the equilibrium production choice of the firm.