A bargaining model in general equilibrium (Q2431097)

This paper presents a simple model of rational endogenous household formation in a general equilibrium framework in which Pareto optimality at the economy level is not necessarily obtained. It embeds the model in a general equilibrium framework and presents some results on equilibria both in the bargaining game and the associated exchange economy. It shows that even those probabilities are arbitrarily close to zero, disagreement in an equilibrium outcome, with high probability. In an exchange economy model with that non cooperative bargaining game as first stage, it presents significant examples of economies for which equilibria exist. Because of disagreement, Pareto suboptimal exchange economy equilibria exist for all elements in the utility function and endowment spaces and they may coexist with Pareto optimal equilibria even at the same competitive prices.