Household Decisions and Equivalence Scales

Considering an economy with two goods {a private good and a household good with a variable degree of publicness {and identical individuals, the paper investigates the implications for economies of size of two extreme households' decision rules: (i) the cooperative model, where households maximize the welfare of their members, and (ii) the non-cooperative model, where each household's member maximizes her own utility. Under the cooperative rule, publicness of the household good is necessary and sufficient for positive economies of size and for these to increase with family size. This no longer holds true under the non-cooperative rule where negative economies of size may appear even in the case where the household consumption good is purely public. The results suggest that it is the inefficiency of the non-cooperative rule that is at the origin of the problem. Furthermore comparison of the scale factors' values indicates that the cooperative rule leads to less generous scales than the non-cooperative one.