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When Inefficiency Begets Efficiency

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  • Hans Gersbach
  • Hans Haller

Abstract

Collective consumption decisions taken by the members of a household may prove inefficient. The impact on market performance depends on whether household inefficiencies are caused by inefficient net trades with the market or by inefficient distribution of resources within households. Inefficient internal distribution always results in inefficient equilibrium allocations. This leads us to consider competitive forces as a disciplinary device for households. Competition of households for both resources and members can eliminate or reduce inefficient internal distribution.

Suggested Citation

  • Hans Gersbach & Hans Haller, 2004. "When Inefficiency Begets Efficiency," CESifo Working Paper Series 1197, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1197
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1197.pdf
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    References listed on IDEAS

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    1. Becker, Gary S., 1978. "The Economic Approach to Human Behavior," University of Chicago Press Economics Books, University of Chicago Press, edition 0, number 9780226041124, June.
    2. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882.
    3. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    4. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
    5. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-467, June.
    6. Hans Gersbach & Hans Haller, 2002. "Competitive Markets, Collective Decisions and Group Formation," Discussion Papers 02-11, University of Copenhagen. Department of Economics.
    7. Hans Gersbach & Hans Haller, 2001. "Collective Decisions and Competitive Markets," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 347-368.
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    Cited by:

    1. Laurens Cherchye & Bram De Rock & Vincenzo Platino, 2013. "Private versus public consumption within groups: testing the nature of goods from aggregate data," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 485-500, November.
    2. Gersbach, Hans & Haller, Hans, 2011. "Groups, collective decisions and markets," Journal of Economic Theory, Elsevier, vol. 146(1), pages 275-299, January.
    3. Gersbach, Hans & Haller, Hans, 2010. "Club theory and household formation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 715-724, September.
    4. Gersbach, Hans & Haller, Hans, 2006. "Clubs and Households," CEPR Discussion Papers 5687, C.E.P.R. Discussion Papers.
    5. Michele Gori & Antonio Villanacci, 2011. "A bargaining model in general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(3), pages 327-375, April.
    6. Hans Gersbach & Hans Haller, 2002. "Competitive Markets, Collective Decisions and Group Formation," Discussion Papers 02-11, University of Copenhagen. Department of Economics.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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