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Household Formation and Markets

  • Hans Gersbach
  • Hans Haller
  • Hideo Konishi

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 CESifo Group Munich in its series CESifo Working Paper Series with number 4414.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4414
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