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Income Distribution, Price Elasticity and the ‘Robinson Effect’

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  • Corrado Benassi
  • Alessandra Chirco

Abstract

In The Economics of Imperfect Competition, Joan Robinson argued that an increase of the consumers’ incomes should make demand less elastic—which, although reasonable about individual demand as an assumption on preferences, suggests a role for income distribution as far as market demand is concerned. We use Esteban's (International Economic Review, Vol. 27 (1986), No. 2, pp. 439–444) income share elasticity to provide sufficient conditions on income distribution that support the ‘Robinson effect’—i.e. such that a negative (positive) relationship between individual income and price elasticity translates into a negative (positive) relationship between mean income and market demand elasticity. The paper also provides a framework to study the effects of distributive shocks on the price elasticity of market demand.

Suggested Citation

  • Corrado Benassi & Alessandra Chirco, 2004. "Income Distribution, Price Elasticity and the ‘Robinson Effect’," Manchester School, University of Manchester, vol. 72(5), pages 591-600, September.
    • Handle: RePEc:bla:manchs:v:72:y:2004:i:5:p:591-600
    DOI: 10.1111/j.1467-9957.2004.00410.x
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    References listed on IDEAS

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    1. Lambert, Peter J & Pfahler, Wilhelm, 1997. "Market Demand and Income Distribution: A Theoretical Exploration," Bulletin of Economic Research, Wiley Blackwell, vol. 49(2), pages 137-151, April.
    2. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2002. "Income concentration and market demand," Oxford Economic Papers, Oxford University Press, vol. 54(4), pages 584-596, October.
    3. Gertler, Paul & Locay, Luis & Sanderson, Warren, 1987. "Are user fees regressive? : The welfare implications of health care financing proposals in Peru," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 67-88.
    4. Corrado Benassi & Roberto Cellini & Alessandra Chirco, 2002. "Personal Income Distribution and Market Structure," German Economic Review, Verein für Socialpolitik, vol. 3(3), pages 327-338, August.
    5. Joan Robinson, 1969. "The Economics of Imperfect Competition," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-15320-6, May.
    6. Esteban, Joan M, 1986. "Income-Share Elasticity and the Size Distribution of Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 439-444, June.
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    Cited by:

    1. Corrado Benassi & Marcella Scrimitore, 2017. "Income Distribution in Network Markets," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 251-271, September.
    2. Osharin Alexander & Verbus Valery, 2015. "Heterogeneous consumers and market structure in a monopolistically competitive setting," EERC Working Paper Series 15/03e, EERC Research Network, Russia and CIS.
    3. Corrado Benassi & Alessandra Chirco, 2006. "Income Share Elasticity and Stochastic Dominance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 26(3), pages 511-525, June.

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