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The Law of Demand and Risk Aversion

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  • John K.H. Quah

    ()
    (St Hugh's College, Oxford, United Kingdom)

Abstract

This note proposes a necessary and sufficient condition on a utility function to guarantee that it generates a demand function satisfying the law of demand. This condition can be interpreted in terms of an agent's attitude towards lotteries in commodity space. As an application, we show that when an agent has an expected utility function, her demand for securities satisfies the law of demand if her coefficient of relative risk aversion does not vary by more than 4. Copyright The Econometric Society 2003.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 71 (2003)
Issue (Month): 2 (March)
Pages: 713-721

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Handle: RePEc:ecm:emetrp:v:71:y:2003:i:2:p:713-721

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References

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  1. Polterovich, Victor & Mityushin, Leonid, 1978. "Criteria for Monotonicity of Demand Functions," MPRA Paper 20097, University Library of Munich, Germany.
  2. Kannai, Yakar, 1989. "A characterization of monotone individual demand functions," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 87-94, February.
  3. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
  4. John K.-H. Quah, 2000. "The Weak Axiom and Comparative Statics," Econometric Society World Congress 2000 Contributed Papers 0437, Econometric Society.
  5. Debreu, Gerard, 1976. "Least concave utility functions," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 121-129, July.
  6. Bettzuge, Marc Oliver, 1998. "An extension of a theorem by Mitjushin and Polterovich to incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 30(3), pages 285-300, October.
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Citations

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Cited by:
  1. John Quah, 2004. "The aggregate weak axiom in a financial economy through dominant substitution effects," Economics Papers 2004-W18, Economics Group, Nuffield College, University of Oxford.
  2. Peter Moffatt & Keith Moffatt, 2011. "Mirror utility functions and reflexion properties of various classes of goods," University of East Anglia Applied and Financial Economics Working Paper Series 031, School of Economics, University of East Anglia, Norwich, UK..
  3. Quah, John K. -H., 2003. "Market demand and comparative statics when goods are normal," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 317-333, June.
  4. Ivan Boldyrev & Olessia Kirtchik, 2013. "General equilibrium theory behind the iron curtain: the case of Victor Polterovich," HSE Working papers WP BRP 14/HUM/2013, National Research University Higher School of Economics.
  5. Christopher P. Chambers & Federico Echenique & Eran Shmaya, 2007. "On Behavioral Complementarity and its Implications," Documentos de Trabajo (working papers) 1007, Department of Economics - dECON.
  6. Michael Jerison & John K.-H. Quah, 2006. "Law of Demand," Discussion Papers 06-07, University at Albany, SUNY, Department of Economics.
  7. Yakar Kannai & Larry Selden, 2014. "Violation of the Law of Demand," Economic Theory, Springer, vol. 55(1), pages 1-28, January.

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