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On Parametrization in Modelling Behavioral Heterogeneity

Author

Listed:
  • Kurt Hildenbrand

    (University of Bonn)

  • Reinhard John

    (University of Bonn)

Abstract

In order to model the concept of behavioral heterogeneity, some authors have employed the following approach. By using affine transformations of the price space, a consumption sector is defined as the set of all transformed demand functions of a given "generating" demand function. This leads to a parametrization of the objects by elements of a finite dimensional Euclidian space. Increasing dispersedness of the parameter distribution is then interpreted as increasing behavioral heterogeneity of the consumption sector. In this paper, we show that such an interpretation is not valid if the generating demand function satisfies a mild regularity condition. Due to the specific parametrization, increasing heterogeneity of the parameters leads to decreasing heterogeneity of the demand functions. More precisely, we prove that they become concentrated nearby a finite set of Cobb-Douglas demand functioons.

Suggested Citation

  • Kurt Hildenbrand & Reinhard John, 2003. "On Parametrization in Modelling Behavioral Heterogeneity," Discussion Papers 03-27, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0327
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2003/0327.pdf/
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    Cited by:

    1. Werner Hildenbrand & Alois Kneip, 2005. "On behavioral heterogeneity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 155-169, January.
    2. Alan Kirman, 2006. "Heterogeneity in Economics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 1(1), pages 89-117, May.

    More about this item

    Keywords

    aggregate demand; behavioral heterogeneity; parametrization;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D30 - Microeconomics - - Distribution - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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