Household Formation and Markets

54 Pages Posted: 3 Oct 2013

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Hans H. Haller

Virginia Polytechnic Institute & State University - Department of Economics

Hideo Konishi

Boston College - Department of Economics

Date Written: September 30, 2013

Abstract

We consider competitive markets for multiple commodities with endogenous formation of one- or two-person households. Within each two-person household, externalities from the partner’s commodity consumption and unpriced actions are allowed. Each individual has two types of traits: observable characteristics and unobservable taste characteristics. Each individual gets utility from his/her own private consumption, from discrete actions such as job-choice, from the partner’s observable characteristics such as appearance and hobbies, from some of the partner’s consumption vectors, and from the partner’s action choices. We investigate competitive market outcomes with an endogenous household structure in which no individual and no man/woman-pair can deviate profitably. We find a set of sufficient conditions under which a stable matching equilibrium exists. We further establish the first welfare theorem for this economy.

Keywords: endogenous household formation, consumption externalities, stable matching equilibrium, efficiency

JEL Classification: D510, D610, D710

Suggested Citation

Gersbach, Hans and Haller, Hans H. and Konishi, Hideo, Household Formation and Markets (September 30, 2013). CESifo Working Paper Series No. 4414. Available at SSRN: https://ssrn.com/abstract=2334700

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hans H. Haller

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-7591 (Phone)
540-231-5097 (Fax)

Hideo Konishi

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-1209 (Phone)
617-552-2308 (Fax)

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