Working Papers

Abstract

This paper provides an extension of general equilibrium theory that incorporates the actions of individuals both as demanders and suppliers of goods
and as members of ¯rms, schools, social groups, and contractual relationships. The central notion of the paper is a group: a collection of individuals associated with one another for some purpose. The model takes as primitive an exogenous set of group types, interpretable as (potential) ¯rms, schools, social groups, contracts etc. The types of schools and ¯rms that materialize in equilibrium, as well as the way that agents acquire skills, are determined endogenously in a competitive market, as are the contracts they enter into, and the production and consumption of private commodities. The model is
well-founded (equilibrium exists) and passes a basic test of perfect competition (coincidence of the core with the set of equilibrium states). Examples
and Applications illustrate the °exibility and power of the framework.

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