A Human Relations Paradox

We present a variant of a general equilibrium model with group formation to study how changes of non-consumptive benefits from group formation impact on the well-being of group members. We identify a human relations paradox: Positive externalities increase, but none of the group members gains in equilibrium. Moreover, a member who experiences an increase of positive emotional benefits in a group may become worse off in equilibrium.Group formation, competitive markets, human relation, exit

Groups, collective decisions and markets

We consider a general equilibrium model where multi-member households make efficient collective consumption decisions and operate in a competitive market environment. Individuals have the option to leave the household and make it on their own or join another household. We study the effect of these outside options on household formation, household stability and equilibrium existence.Household behavior Household formation Collective decision making General equilibrium