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Errors of aggregation and errors of specification in a consumer demand model: a theoretical note

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  • Frank T. Denton
  • Dean C. Mountain
  • Byron G Spencer

Abstract

Consumer demand models based on the concept of a representative or average consumer suffer from aggregation error. Misspecification of the underlying micro utility-maximizing model, which is virtually inevitable, also results in error. This note provides a theoretical investigation of the relationship between the two types of error. Misspecified expenditure support functions for demand systems at the micro level induce the same misspecified structure in the corresponding expenditure functions at the macro level, and the errors at the two levels are shown to be of similar order.

Suggested Citation

  • Frank T. Denton & Dean C. Mountain & Byron G Spencer, 2006. "Errors of aggregation and errors of specification in a consumer demand model: a theoretical note," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1398-1407, November.
  • Handle: RePEc:cje:issued:v:39:y:2006:i:4:p:1398-1407
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    References listed on IDEAS

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    Cited by:

    1. Denton, Frank T. & Mountain, Dean C., 2011. "Exploring the effects of aggregation error in the estimation of consumer demand elasticities," Economic Modelling, Elsevier, vol. 28(4), pages 1747-1755, July.
    2. Frank T. Denton & Dean C. Mountain, 2007. "Exploring the Effects of Aggregation Error in the Estimation of Consumer Demand Elasticities," Social and Economic Dimensions of an Aging Population Research Papers 226, McMaster University.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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