Endogenous household formation and inefficiency in a general equilibrium model

Michele Gori

No 2010-09, Working Papers - Mathematical Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

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.

Keywords: General Equilibrium; Bargaining; Endogenous household formation; Efficiency; Pareto Optimality; Asymmetric Nash bargaining solution. (search for similar items in EconPapers)
JEL-codes: C71 C78 D13 D50 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-06, Revised 2010-10
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (3)

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