Household decisions and equilibrium efficiency

A general equilibrium model is introduced where a household may consist of several members, each with individual preferences and/or resources. When ho useholds obey collective rationality, certain intrahousehold externalities can he fully internalized by the respective households so that competitive exchange among households is efficient. As a rule, however, such intrahouse hold externalities are not fully internalized by individual household membe rs acting in their personal interest so that competitive exchange among suc h individuals is only efficient in exceptional cases.