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ω‐Homothetic Preferences: Theory and Applications

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  • Bipasa Datta
  • Huw Dixon

Abstract

This paper develops a new class of homothetic preferences which generate Marshallian demand curves for individual goods which can be concave, convex or linear in own price under the assumption that agents treat aggregate price indices as given (as in Dixit‐Stiglitz, 1977). The preferences are represented by a cost function which has two parameters: one determining the curvature of the Marshallian demand; the other determining the elasticity of demand when all prices are equal. The elasticity of demand varies with relative prices. Illustrative examples are given of Cournot duopoly and exchange rate pass‐through.

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  • Bipasa Datta & Huw Dixon, 2001. "ω‐Homothetic Preferences: Theory and Applications," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 148-163, May.
    • Handle: RePEc:bla:scotjp:v:48:y:2001:i:2:p:148-163
    DOI: 10.1111/1467-9485.00191
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    Cited by:

    1. Dixon, Huw & Pourpourides, Panayiotis M., 2016. "On imperfect competition with occasionally binding cash-in-advance constraints," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 72-85.
    2. M. Correa-López, 2006. "A model of unionized oligopoly in general equilibrium," Economics Discussion Paper Series 0605, Economics, The University of Manchester.
    3. Bertoletti, Paolo, 2006. "Logarithmic quasi-homothetic preferences," Economics Letters, Elsevier, vol. 90(3), pages 433-439, March.
    4. Correa López, Mónica, 2003. "Extended linear-homothetic preferences and the Cournot-Bertrand profit differential," Economics Discussion Papers 8868, University of Essex, Department of Economics.

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