A Human Relations Paradox
CER-ETH Working Paper No. 11/145
13 Pages Posted: 26 Apr 2011
Date Written: April 26, 2011
We present a variant of a general equilibrium model with group formation to study how changes of non-consumptive benefits from group formation impact on the well-being of group members. We identify a human relations paradox: Positive externalities increase, but none of the group members gains in equilibrium. Moreover, a member who experiences an increase of positive emotional benefits in a group may become worse off in equilibrium.
Keywords: Group formation, competitive markets, human relation, exit
JEL Classification: D41, D50, D60
Suggested Citation: Suggested Citation