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Published March 2011 | public
Journal Article

Implications of Pareto efficiency for two-agent (household) choice


We study when two-member household choice behavior is compatible with Pareto optimality. We ask when an external observer of household choices, who does not know the individuals' preferences, can rationalize the choices as being Pareto-optimal. Our main contribution is to reduce the problem of rationalization to a graph-coloring problem. As a result, we obtain simple tests for Pareto optimal choice behavior. In addition to the tests, and using our graph-theoretic representation, we show that Pareto rationalization is equivalent to a system of quadratic equations being solvable.

Additional Information

© 2011 Elsevier B.V. Received 27 February 2010; revised 11 September 2010; accepted 4 January 2011. Available online 26 January 2011. We thank Leeat Yariv for comments on an earlier draft. We are also very grateful to an anonymous referee for his/her thoughtful comments. Our research was supported by the Lee Center at Caltech.

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