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Preferences and the Dynamic Representative Consumer

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Abstract

This paper provides families of time-separable, twice continuously di?erentiable, and strictly concave utility functions of a group of consumers that are both su?cient and necessary in order to have linear aggregation in a single-commodity-type deterministic dynamic environment, in the presence of consumer wealth-, labor-productivity, and preference heterogeneity, for alternative settings where the rates of time preference can be the same or di?erent across consumers. The employed concept of linear aggregation pertains the existence of a representative consumer with a time-separable utility function. It is proved that when the rates of time preference are choice-independent and heterogeneous across consumers, a representative consumer exists if, and only if, the momentary utility functions of all consumers are exponential. Results are also provided for, (i) common across consumers choice-independent rates of time preference, and, (ii) heterogeneous choice-dependent rates of time preference, and compared with previously identi?ed su?cient conditions for aggregation in the existing literature.

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Bibliographic Info

Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0505.

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Date of creation: May 2005
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Handle: RePEc:vie:viennp:0505

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Web page: http://www.univie.ac.at/vwl

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  1. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
  2. 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.
  3. Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
  4. Pollak, Robert A, 1971. "Additive Utility Functions and Linear Engel Curves," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 401-14, October.
  5. Caselli, F. & Ventura, J., 1996. "A Representative Consumer Theory of Distribution," Working papers 96-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. 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.
  7. Christopher D. Carroll, 2000. "Requiem for the Representative Consumer? Aggregate Implications of Microeconomic Consumption Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 110-115, May.
  8. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
  9. Lilia Maliar & Serguei Maliar, 1999. "- Heterogeneity In Capital And Skills In A Neoclassical Stochastic Growth Model," Working Papers. Serie AD 1999-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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Cited by:
  1. Carolina Achury & Sylwia Hubar & Christos Koulovatianos, 2011. "Online Appendix to "Saving Rates and Portfolio Choice with Subsistence Consumption"," Technical Appendices 10-11, Review of Economic Dynamics.
  2. Carolina Achury & Sylwia Hubar & Christos Koulovatianos, . "Saving Rates and Portfolio Choice with Subsistence Consumption," Discussion Papers 10/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  3. Christos Koulovatianos & Carsten Schröder & Ulrich Schmidt, 2010. "Confronting the Representative Consumer with Household-Size Heterogeneity," Kiel Working Papers 1663, Kiel Institute for the World Economy.

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