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Whom or What Does the Representative Individual Represent?

  • Alan P. Kirman

Macroeconomic models often assume that the choices of all the diverse agents in one sector—consumers for example—can be considered as the choices of one "representative" standard utility maximizing individual whose choices coincide with the aggregate choices of the heterogeneous individuals. My basic point is that the reduction of the behavior of a group of heterogeneous agents even if they are all themselves utility maximizers, is not simply an analytical convenience as often explained, but is both unjustified and leads to conclusions which are usually misleading and often wrong. First, such models are particularly ill-suited to studying macroeconomic problems like unemployment, which should be viewed as coordination failures. Furthermore these models, instead of being a hive of activity and exchange, are frequently, ones in which no trade at all takes place. And this is just the beginning of a list of problems with this approach. Finally I will consider more positive alternatives to the representative individual approach—approaches that focus on heterogeneity of agents may and interaction between individuals. It is clear that the "representative" agent deserves a decent burial, as an approach to economic analysis that is not only primitive, but fundamentally erroneous.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 6 (1992)
Issue (Month): 2 (Spring)
Pages: 117-136

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Handle: RePEc:aea:jecper:v:6:y:1992:i:2:p:117-36
Note: DOI: 10.1257/jep.6.2.117
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  1. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-48.
  2. Michael Jerison, 1997. "Nonrepresentative Representative Consumers," Discussion Papers 97-01, University at Albany, SUNY, Department of Economics.
  3. Sah, R.K., 1990. "Social Osmosis And Patterns Of Crime: A Dynamic Economic Analysis," Papers 609, Yale - Economic Growth Center.
  4. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
  5. Kehoe, Timothy J, 1985. "Multiplicity of Equilibria and Comparative Statics," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 119-47, February.
  6. Quah, D., 1989. "Permanent And Transitory Movements In Labor Income: An Explanation For "Excess Smoothness" In Consumption," Working papers 535, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Mantel, Rolf R., 1976. "Homothetic preferences and community excess demand functions," Journal of Economic Theory, Elsevier, vol. 12(2), pages 197-201, April.
  8. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
  9. Nils H. Hakansson & J. Gregory Kunkel & James A. Ohlson., 1981. "Sufficient and Necessary Conditions for Information to Have Social Value in Pure Exchange," Research Program in Finance Working Papers 122, University of California at Berkeley.
  10. Lippi, Marco, 1988. "On the dynamic shape of aggregated error correction models," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 561-585.
  11. Kirman, Alan P & Oddou, Claude & Weber, Shlomo, 1986. "Stochastic Communication and Coalition Formation," Econometrica, Econometric Society, vol. 54(1), pages 129-38, January.
  12. E. Eisenberg, 1961. "Aggregation of Utility Functions," Management Science, INFORMS, vol. 7(4), pages 337-350, July.
  13. Lewbel, Arthur, 1989. "Exact Aggregation and a Representative Consumer," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 621-33, August.
  14. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  15. Kirman, A P & Koch, K J, 1986. "Market Excess Demand in Exchange Economies with Identical Preferences and Collinear Endowments," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 457-63, July.
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