Household Inefficiency and Equilibrium Efficiency
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Collective consumption decisions taken by the members of a household may prove inefficient. The impact on market performance depends on whether household inefficiencies are caused by inefficient net trades with the market or by inefficient distribution of resources within households. Inefficient net trades might be consistent with global efficiency. Inefficient internal distribution always results in inefficient equilibrium allocations. This leads us to consider competitive forces as disciplinary device for households. Competition of households for both resources and members can eliminate or reduce inefficient internal distribution.
Key wordsGeneral equilibrium Household decisions Household formation
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