DP5030 The Affectionate Society: Does Competition for Partners Promote Friendliness?

Author(s): Hans Gersbach, Hans Haller
Publication Date: May 2005
Keyword(s): collective decisions, competition for partners, coupling condition, friendliness, socio-economic composition
JEL(s): D13, D50, D70, J10
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5030

We study household formation in a model where collective consumption decisions of a household depend on the strategic choices of its members. The surplus of households is determined by individual choices of levels of friendliness to each other. A strategic conflict arises from a coupling condition that ceteris paribus, a person's friendlier attitude reduces the individual's influence in the household's collective decision on how to divide the ensuing surplus. While partners in an isolated household choose the minimum level of friendliness, competition for partners tends to promote friendliness. We find that affluence does not buy affection, but can lead to withholding of affection by an affluent partner who can afford to do so. In general, the equilibrium degree of friendliness proves sensitive to the socio-economic composition of the population.