Bargaining Power and Equilibrium Consumption



Therefore, in equilibrium, the aggregate consumption for household h is (χ,y) = (δ, 2).
The associated individual shares are

σ

x 1 = -----x = σ ;

σ+τ

τ

x 2 = -----x = τ ;

σ+τ

_ σ*    _ 1   σ*

y1     *-* I *y y     O *-* I — * ;

σ + τ*    2 σ* + τ*

_*                 λ-*

τ        1τ

y2 = σ* + τ* y = 2 σ* + τ*

As a function of α, consumer 1 achieves

u 1 = -1 μ 1 )1 -γ1 μ σ** )1- 1

γ1             α

= const 1 ∙ α 1 -----------------—

1 - γ2 - (γ1 - γ2)α

which is increasing in α. Consumer 2 achieves

1-γ2

u2


τγ2

const2 (1 -α )γ 2 μ -—τ1α—r )
1 - γ1 - (γ2 - γ1)(1 - α)

which is decreasing in α. Hence a shift of bargaining power from consumer 2 to con-
sumer 1 benefits consumer 1 and harms consumer 2, who ends up consuming less of
both commodities.

Proof of Proposition 3

Good ` serves as a nume´raire so that the price system assumes the form (p1 , . . . , p`-1, 1).

We consider the first-order conditions of maximizing Sh in household h:5

1 ∂ uh1

αh~jJ ~0~-     λh pk = 0, k = 1, ■ ■ ■ , ' - 1;

Uh1 ∂xh1

αh~rτ     λh = 0;

Uh1

(1 - αh )— ∙ -—k    λh pk = 0, k = 1, ■ ■ ■ , ' - 1;

Uh2 ∂xkh2

(1 - αh)~j~τ--λh = 0

Uh2

5 Note that our assumption of sufficient endowments with the num´eraire good in all households
allows us to work with the entire set of first-order conditions.

29



More intriguing information

1. Synchronisation and Differentiation: Two Stages of Coordinative Structure
2. A Unified Model For Developmental Robotics
3. Experience, Innovation and Productivity - Empirical Evidence from Italy's Slowdown
4. The name is absent
5. Population ageing, taxation, pensions and health costs, CHERE Working Paper 2007/10
6. Markets for Influence
7. Migration and employment status during the turbulent nineties in Sweden
8. Wage mobility, Job mobility and Spatial mobility in the Portuguese economy
9. Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry
10. The name is absent