Abstract
We allow for inefficient household decisions, distinguishing between inefficient net trades with the market and inefficient internal distribution. Inefficiencies at the household level may, but need not, lead to inefficiency at the economy level: Inefficiency may beget efficiency. Endogenous household formation, availability of outside options and the associated competition for partners can limit—or in some cases prevent—inefficiencies at the household level.
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Inefficient net trades do not rule out Pareto optimality.
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Inefficient internal distribution always impedes Pareto optimality.
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Competition for resources and members can cause the elimination or reduction of inefficient internal distribution in households.
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Notes
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Leibenstein’s much acclaimed 1966 article has raised the awareness for technological inefficiencies or X-inefficiencies. Hart (1983) formalizes the idea that competition in the product market reduces managerial slack.
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Gersbach, H., Haller, H. (2017). Inefficient Household Decisions. In: Groups and Markets. Springer, Cham. https://doi.org/10.1007/978-3-319-60516-6_13
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DOI: https://doi.org/10.1007/978-3-319-60516-6_13
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