Households, markets and public choice

We develop a model that combines competitive exchange of private commodities across endogenously formed groups with public good provision and global collective decisions. There is a tension between local and global collective decisions that can cause non-existence of competitive equilibria with endogenous household formation and public choice. In particular, we show that group formation and collective decisions on public goods may destabilize each other, even if there exist favorable conditions for matching on the one hand, and for global collective decisions on the other hand. We establish sufficient conditions for the existence of competitive equilibria with endogenous household formation and public choice and illustrate a variety of phenomena when households take local collective decisions and have a voice in global collective decisions. (C) 2019 Elsevier B.V. All rights reserved.