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Endogenous household formation and inefficiency in a general equilibrium model

Author

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  • Michele Gori

    () (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)

Abstract

The main purpose of the paper is to show that the process of household formation in a competitive market does not necessarily lead to outcomes that are efficient at the economy level, even assuming that members of each household take efficient collective consumption decisions. To this end, we consider a generalization of the Arrow-Debreu exchange economy model in which endogenous household formation is introduced, we assume efficient household decision processes, and we show that if there are many households which can potentially be formed, then there is a not negligible set of economies admitting inefficient equilibrium allocations.

Suggested Citation

  • Michele Gori, 2010. "Endogenous household formation and inefficiency in a general equilibrium model," Working Papers - Mathematical Economics 2010-09, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa, revised Oct 2010.
  • Handle: RePEc:flo:wpaper:2010-09
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    File URL: http://www.disei.unifi.it/upload/sub/pubblicazioni/repec/flo/workingpapers/storicodimad/2010n/dimadwp2010-09.pdf
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    Cited by:

    1. Hans Gersbach & Hans Haller, 2011. "General Equilibrium with Multi-Member Households and Production," CESifo Working Paper Series 3659, CESifo Group Munich.
    2. Hans Gersbach & Hans Haller & Hideo Konishi, 2015. "Household formation and markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 461-507, August.

    More about this item

    Keywords

    General Equilibrium; Bargaining; Endogenous household formation; Efficiency; Pareto Optimality; Asymmetric Nash bargaining solution.;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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