Omega-Homothetic Preferences: Theory and Applications
This paper develops a new class of homothetic preferences that generate Marshallian demand curves for individual goods which can be concave, convex or linear in own price under the assumption that agents treat aggregate price indices as given (as in Dixit-Stiglitz, 1977). The preferences are represented by a cost function that has two parameters: one determining the curvature of the Marshallian demand; the other determining the elasticity of demand when all prices are equal. The elasticity of demand varies with relative prices. Illustrative examples are given of Cournot duopoly and exchange rate pass-through. Copyright 2001 by Scottish Economic Society.
Volume (Year): 48 (2001)
Issue (Month): 2 (May)
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