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Transformation of the commodity space, behavioral heterogeneity and the aggregation problem

  • Grandmont Jean-michel

Aggregation in exchange markets is studied by imposing restrictions on distributions of the households' characteristics. Approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided. Increasing behavioral heterogeneity makes aggregate expenditures more independent of prices. This has strong consequences for the prevalence, in the aggregate, of the weak axiom of revealed preference, of gross substitutability, and on uniqueness and stability of the Walrasian exchange equilibrium. These strong macroeconomic regularities are obtained essentially through distributional assumptions, as no “rationality” requirements are imposed on individual demand functions, other than homogeneity and Walras' Law.

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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 9114.

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Length: 47 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:cpm:cepmap:9114
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  15. Davis, Otto A & DeGroot, Morris H & Hinich, Melvin J, 1972. "Social Preference Orderings and Majority Rule," Econometrica, Econometric Society, vol. 40(1), pages 147-57, January.
  16. Egbert Dierker, 1989. "Competition for Customers," Discussion Paper Serie A 244, University of Bonn, Germany.
  17. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, June.
  18. Trockel, Walter, 1989. "Classification of budget-invariant monotonic preferences," Economics Letters, Elsevier, vol. 30(1), pages 7-10.
  19. Gordon Tullock, 1967. "The General Irrelevance of the General Impossibility Theorem," The Quarterly Journal of Economics, Oxford University Press, vol. 81(2), pages 256-270.
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