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Household Formation and Markets

  • Hans Gersbach

    (ETH Zurich)

  • Hans Haller

    (Virginia Tech University)

  • Hideo Konishi

    ()

    (Boston College)

We consider competitive markets for multiple commodities with endogenous formation of one- or two-person households. Within each two-person household, externalities from the partner's commodity consumption and unpriced actions are allowed. Each individual has two types of traits: observable characteristics and unobservable taste characteristics. Each individual gets utility from his/her own private consumption, from discrete actions such as job-choice, from the partner's observable characteristics such as appearance and hobbies, from some of the partner's consumption vectors, and from the partner's action choices. We investigate competitive market outcomes with an endogenous household structure in which no individual and no man/woman-pair can deviate profitably. We find a set of sufficient conditions under which a stable matching equilibrium exists. We further establish the first welfare theorem for this economy.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 821.

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Date of creation: 31 Mar 2013
Date of revision: 01 Nov 2016
Publication status: published, Economic Theory, 59, 461-507, 2015.
Handle: RePEc:boc:bocoec:821
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