The Law of Demand and Risk Aversion
This note proposes a necessary and sufficient condition on a utility function to guarantee that it generates a demand function satisfying the law of demand. This condition can be interpreted in terms of an agent's attitude towards lotteries in commodity space. As an application, we show that when an agent has an expected utility function, her demand for securities satisfies the law of demand if her coefficient of relative risk aversion does not vary by more than 4. Copyright The Econometric Society 2003.
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Volume (Year): 71 (2003)
Issue (Month): 2 (March)
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- Debreu, Gerard, 1976. "Least concave utility functions," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 121-129, July.
- Kannai, Yakar, 1989. "A characterization of monotone individual demand functions," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 87-94, February.
- Bettzuge, Marc Oliver, 1998. "An extension of a theorem by Mitjushin and Polterovich to incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 30(3), pages 285-300, October.
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"The Theory of General Economic Equilibrium,"
Cambridge University Press, number 9780521388702, November.
- John K.-H. Quah, 2000.
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Econometric Society World Congress 2000 Contributed Papers
0437, Econometric Society.
- Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
- Polterovich, Victor & Mityushin, Leonid, 1978. "Criteria for Monotonicity of Demand Functions," MPRA Paper 20097, University Library of Munich, Germany.
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