Inefficient Household Decisions and Efficient Markets
CES Working Paper at University of Munich No. 138
Posted: 19 May 1998
Date Written: June 1997
Collective consumption decisions taken by the members of a household may prove inefficient. This paper investigates the impact of inefficient household decisions on market performance when there is competitive exchange among households. Market efficiency can occur when household inefficiencies are merely due to inefficient net trades with the market. On the other hand, if household inefficiencies are solely caused by an inefficient distribution of a household's aggregate consumption to its individual members, then market efficiency is bound to fail.
JEL Classification: D31, E21
Suggested Citation: Suggested Citation