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An Analytical Construction Of Constantinides¿ Social Utility Function

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Author Info
Lilia Maliar () (Universidad de Alicante)
Serguei Maliar (Universidad de Alicante)

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Abstract

This paper studies the properties of the social utility function defined by the planner's problem of Constantinides (1982). We show one set of restrictions on the optimal planner's policy rule, which is sufficient for constructing the social utility function analytically. For such well-known classes of utility functions as the HARA and the CES, our construction is equivalent to Gorman's (1953) aggregation. However, we can also construct the social utility function analytically in some cases when Gorman's (1953) representative consumer does not exist; in such cases, the social utility function depends on "heterogeneity" parameters. Our results can be used for simplifying the analysis of equilibrium in dynamic heterogeneous-agent models.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2005-25.pdf
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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2005-25.

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Length: 25 pages
Date of creation: Sep 2005
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2005-25

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Keywords: Aggregation of preferences; Planner's problem; Social utility function; Social welfare; Gorman aggregation;

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  1. Den Haan, Wouter J., 1997. "Solving Dynamic Models With Aggregate Shocks And Heterogeneous Agents," Macroeconomic Dynamics, Cambridge University Press, vol. 1(02), pages 355-386, June. [Downloadable!]
  2. Blackorby, Charles & Schworm, William, 1993. "The Implications of Additive Community Preferences in a Multi-consumer Economy," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 209-27, January. [Downloadable!] (restricted)
  3. Chipman, John S., 1974. "Homothetic preferences and aggregation," Journal of Economic Theory, Elsevier, vol. 8(1), pages 26-38, May. [Downloadable!] (restricted)
  4. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December. [Downloadable!] (restricted)
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  5. Freixas, Xavier & Mas-Colell, Andreu, 1987. "Engel Curves Leading to the Weak Axiom in the Aggregate," Econometrica, Econometric Society, vol. 55(3), pages 515-31, May. [Downloadable!] (restricted)
  6. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July. [Downloadable!] (restricted)
  7. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," Journal of Business, University of Chicago Press, vol. 55(2), pages 253-67, April. [Downloadable!] (restricted)
  8. Masao Ogaki, 2003. "Aggregation under Complete Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 977-986, October. [Downloadable!] (restricted)
  9. Lilia Maliar & Serguei Maliar, 2003. "Quasi-Linear Preferences In The Macroeconomy: Indeterminacy, Heterogeneity Andthe Representative Consumer," Working Papers. Serie AD 2003-30, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  10. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October. [Downloadable!] (restricted)
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  11. Pollak, Robert A, 1971. "Additive Utility Functions and Linear Engel Curves," Review of Economic Studies, Blackwell Publishing, vol. 38(116), pages 401-14, October. [Downloadable!] (restricted)
  12. Francesco Caselli & Jaume Ventura, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September. [Downloadable!] (restricted)
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  13. Chipman, John S. & Moore, James C., 1979. "On social welfare functions and the aggregation of preferences," Journal of Economic Theory, Elsevier, vol. 21(1), pages 111-139, August. [Downloadable!] (restricted)
  14. Lilia Maliar & Serguei Maliar, 2004. "Preference shocks from aggregation: time series data evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 768-781, August. [Downloadable!] (restricted)
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  15. Geanakoplos, J D & Polemarchakis, H M, 1980. "On the Disaggregation of Excess Demand Functions," Econometrica, Econometric Society, vol. 48(2), pages 315-31, March. [Downloadable!] (restricted)
  16. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September. [Downloadable!] (restricted)
  17. repec:cup:macdyn:v:1:y:1997:i:2:p:355-86 is not listed on IDEAS
  18. Shafer, Wayne J, 1977. "Revealed Preference and Aggregation," Econometrica, Econometric Society, vol. 45(5), pages 1173-82, July. [Downloadable!] (restricted)
  19. Maliar, Lilia & Maliar, Serguei, 2001. "Heterogeneity in capital and skills in a neoclassical stochastic growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1367-1397, September. [Downloadable!] (restricted)
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  20. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April. [Downloadable!] (restricted)
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  21. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May. [Downloadable!] (restricted)
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