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When Inefficiency Begets Efficiency

  • Gersbach, Hans

    (Alfred-Weber-Institut, University of Heidelberg)

  • Haller, Hans

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

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.

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Paper provided by Institute for Advanced Studies in its series Economics Series with number 128.

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Length: 32 pages
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:ihs:ihsesp:128
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  1. Chiappori, P.A., 1989. "Collective Labour Supply and Welfare," DELTA Working Papers 89-07, DELTA (Ecole normale supérieure).
  2. Hans Gersbach & Hans Haller, 2003. "Competitive Markets, Collective Decisions and Group Formation," CESifo Working Paper Series 953, CESifo Group Munich.
  3. 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.
  4. Gersbach, Hans & Haller, Hans, 2001. "Collective Decisions and Competitive Markets," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 347-68, April.
  5. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
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