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Modeling Behavioral Heterogeneity in Demand Theory

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  • Isabelle MARET
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    Abstract

    This paper is a first step in answering B. Villemeur\'s (1998,1999) and Hildenbrand\'s (1998) criticism of the notions of behavioral heterogeneity introduced in demand theory by Grandmont (1992) and Kneip (1999). As in the Grandmont-Kneip approach, we define a notion of behavioral heterogeneity such that if the population is sufficiently heterogeneous, the aggregate budget share function is proved to become insensitive to changes in prices and income. However, in contrast to the aforementioned literature, this insensitivity in the aggregate is not explained by any insensitivity property at the microeconomic level, but rather by a ``balancing effect\'\' : For any commodity, the negative effect on market budget share induced after a change in prices or income by individuals who decrease their budget share is compensated by the existence of individuals who increase their budget share.

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    Bibliographic Info

    Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2001-04.

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    Date of creation: 2001
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    Handle: RePEc:ulp:sbbeta:2001-04

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    Related research

    Keywords: Aggregation; Behavioral heterogeneity; Large economy; Balancing effect; Insensitivity of maket budget shares to changes in prices and income.;

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    References

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    1. Isabelle MARET, 2001. "Modeling Behavioral Heterogeneity in Demand Theory," Working Papers of BETA 2001-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Werner Hildenbrand & Alois Kneip, 1999. "Behavioral Heterogeneity," Discussion Paper Serie A 589, University of Bonn, Germany.
    3. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
    4. Hildenbrand, K., 1998. "On J.M. Grandmont's Modelling of Behavioral Heterogeneity," Discussion Paper Serie A 580, University of Bonn, Germany.
    5. de Villemur, E.B., 1998. "Heterogeneity and Stability: Variations on Scarf's Processes," Economics Working Papers eco98/38, European University Institute.
    6. John K.-H. Quah, 1997. "The Law of Demand when Income Is Price Dependent," Econometrica, Econometric Society, vol. 65(6), pages 1421-1442, November.
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    Cited by:
    1. Isabelle MARET, 2002. "Modeling Behavioral Heterogeneity in Demand Theory," Working Papers of BETA 2002-05, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Isabelle MARET, 2001. "Modeling Behavioral Heterogeneity in Demand Theory," Working Papers of BETA 2001-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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