from the traditional market model enables us to investigate the interplay of dual roles
of households: households as collective decision making units on the one hand and as
competitive market participants on the other hand.
The current model starts from the general equilibrium model in Haller (2000) where
the household structure is fixed.2 We specialize by assuming that the efficient collective
household decision is the result of (possibly asymmetric) Nash bargaining within the
household. This feature allows us to parametrize relative bargaining power, to perform
comparative statics and to answer the question at hand, how a shift of bargaining
power within households affects equilibrium allocation and welfare.
The model is introduced in the next section. In Section 3, we focus on a two-
person household embedded in a larger economy and study how a shift of bargaining
power within that household affects the consumption and welfare of its members. We
decompose the intra-household effects into two relevant effects, a pure bargaining effect
and a price effect. In the presence of negative intra-household externalities, there can
be an equilibrium with free disposal where the budget constraint is not binding for
the select two-person household and the household is not subject to a price effect.
Typically, however, the price effect is non-zero. It can be small (negligible) or large
(drastic).
In Section 4, we exemplify the different scenarios suggested by the general compar-
ative statics of Section 2. We go through a sequence of representative examples, with
a two-person household and a one-person household, and examine the general equi-
librium implications of a shift of bargaining power within the two-person household.
We observe that at least one member is always affected by a shift of bargaining power
within the two-person household, but that the non-member may be affected as well.
We observe further that price effects may be drastic if preferences exhibit little substi-
tutability. We should mention that the findings for these two-household economies are
also valid for respective replica economies obtained from the representative examples,
provided that each of the two-person households of the replica economy undergoes the
same shift of intra-household bargaining power. These shifts constitute a particular
instance of a widespread shift of bargaining power in favor of a specific sociological
group.
In Section 5, we investigate in more detail shifts of bargaining power in favor of
2See Gersbach and Haller (2001, 2002) for versions with variable household structure.