Transformations of the Commodity Space, Behavioral Heterogeneity and the Aggregation Problem
AbstractThe aggregation problem in demand analysis and exchange equilibrium is studied by putting restrictions on the shape of the distribution of the agents' characteristics. This is done by exploiting the finite dimensional linear structure induced on demand functions by affine transformations of the commodity space (or household equivalence scales). Increasing the degree of behavioral heterogeneity in the household sector or more specifically, making the conditional distributions in each equivalence class of demand functions fiat enough, has an important regularizing influence on aggregate budget shares: market demand has a negative dominant diagonal Jacobian matrix, aggregate excess demand has the gross substitutability property, on a large set of prices. These facts have strong consequences for the unicity and stability of equilibrium as well as for the prevalence of the weak axiom of revealed preference in the aggregate in a private ownership Walrasian exchange model.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 987.
Length: 48 pages
Date of creation: Jul 1991
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
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