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When Inefficiency Begets Efficiency

Author

Listed:
  • Gersbach, Hans

    (Alfred-Weber-Institut, University of Heidelberg)

  • Haller, Hans

    (Department of Economics, Virginia Polytechnic Institute and State University)

Abstract

Collective consumption decisions taken by the members of a household may prove inefficient. The impact of such inefficient household decisions on market performance is investigated. At one extreme, market efficiency can occur even when household decisions are inefficient, namely when household inefficiencies are merely due to inefficient net trades with the market. At the other extreme, market efficiency is bound to fail, if household inefficiencies are solely caused by an inefficient distribution of a household's aggregate consumption to its individual members. This leads us to consider competitive forces as a disciplinary device for households. When households compete for both resources and members then household stability requires efficient or not too inefficient internal distribution.

Suggested Citation

  • Gersbach, Hans & Haller, Hans, 2003. "When Inefficiency Begets Efficiency," Economics Series 128, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:128
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    File URL: http://www.ihs.ac.at/publications/eco/es-128.pdf
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    References listed on IDEAS

    as
    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.
    2. 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.
    3. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier.
    4. Hans Gersbach & Hans Haller, 2001. "Collective Decisions and Competitive Markets," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 347-368.
    5. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
    6. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-467, June.
    7. Hans Gersbach & Hans Haller, 2002. "Competitive Markets, Collective Decisions and Group Formation," Discussion Papers 02-11, University of Copenhagen. Department of Economics.
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    Citations

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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, 2010. "Club theory and household formation," Journal of Mathematical Economics, Elsevier, pages 715-724.
    3. Gersbach, Hans & Haller, Hans, 2006. "Clubs and Households," CEPR Discussion Papers 5687, C.E.P.R. Discussion Papers.
    4. Hans Gersbach & Hans Haller, 2002. "Competitive Markets, Collective Decisions and Group Formation," Discussion Papers 02-11, University of Copenhagen. Department of Economics.
    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. Gersbach, Hans & Haller, Hans, 2011. "Groups, collective decisions and markets," Journal of Economic Theory, Elsevier, vol. 146(1), pages 275-299, January.

    More about this item

    Keywords

    Allocative efficiency; General equilibrium; Household behavior;

    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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