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Quasi-Linear Preferences In The Macroeconomy: Indeterminacy, Heterogeneity Andthe Representative Consumer

  • Lilia Maliar

    ()

    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

We use aggregation theory to investigate the link between one-consumer and multi-consumer economies under a quasi-linear class of preferences. Our study is carried out in the context of the neoclassical growth model. The quasi-linear preferences considered are additive in consumption and leisure and linear in leisure. We first show that in a homogeneous agents economy, the individual hours worked are not uniquely determined. We then demonstrate that the indeterminacy can be resolved by introducing heterogeneity. For example, idiosyncratic shocks to productivities or imperfect substitutability of labor restore the uniqueness of equilibrium. As a special case, our analysis includes the indivisible labor model by Hansen (1985).

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-30.

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Length: 23 pages
Date of creation: Aug 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-30
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  1. Blackorby, Charles & Schworm, William, 1993. "The Implications of Additive Community Preferences in a Multi-consumer Economy," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 209-27, January.
  2. Lilia Maliar & Serguei Maliar, 1999. "- Heterogeneity In Capital And Skills In A Neoclassical Stochastic Growth Model," Working Papers. Serie AD 1999-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
  4. Cho, Jang-Ok, 1995. "Ex post heterogeneity and the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 19(3), pages 533-551, April.
  5. Atkeson, A. & Ogaki, M., 1991. "Wealth-Varying Intertemporal Elasticities of Substitution Evidence from Panel and Aggregate Data," RCER Working Papers 303, University of Rochester - Center for Economic Research (RCER).
  6. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
  7. Timothy J Kehoe & David K Levine, 1985. "Comparative Statics and Perfect Foresight in Infinite Horizon Economies," Levine's Working Paper Archive 1873, David K. Levine.
  8. Lilia Maliar & Serguei Maliar, 2002. "The Representative Consumer In The Neoclassical Growth Model With Idiosyncratic Shocks," Working Papers. Serie AD 2002-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
  10. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  11. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  12. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  13. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
  14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  15. Maliar, Lilia & Maliar, Serguei, 2000. "Differential Responses of Labor Supply across Productivity Groups," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 85-108, January.
  16. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," The Journal of Business, University of Chicago Press, vol. 55(2), pages 253-67, April.
  17. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  18. Castaneda, Ana & Diaz-Gimenez, Javier & Rios-Rull, Jose-Victor, 1998. "Exploring the income distribution business cycle dynamics," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 93-130, June.
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