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Demand Dispersion, Metonymy and Ideal Panel Data

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  • Michael Jerison

Abstract

In a generic competitive economy with constant returns production and "increasing dispersion," market demand satisfies the weak axiom of revealed preference and equilibrium is unique. Increasing dispersion requires, roughly, that when the households' incomes rise slightly their demand vectors move apart. We show how to test for it using panel data with fixed relative prices under a "structural stability" hypothesis due to Hildenbrand and Kneip (1999). We also show how to test for it using cross section data if the households' demand functions and incomes are independently distributed, or under a much weaker condition called "dispersion metonymy." We show that this weaker condition is untestable---even with ideal panel data that allow a direct test of increasing dispersion. Thus, cross section tests of increasing dispersion rely on an assumption that is not potentially falsifiable.

Suggested Citation

  • Michael Jerison, 2001. "Demand Dispersion, Metonymy and Ideal Panel Data," Discussion Papers 01-11, University at Albany, SUNY, Department of Economics.
  • Handle: RePEc:nya:albaec:01-11
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    File URL: http://www.albany.edu/economics/research/workingp/2001/panel.pdf
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    References listed on IDEAS

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    1. Jerison, Michael, 1999. "Dispersed excess demands, the weak axiom and uniqueness of equilibrium," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 15-48, February.
    2. Michael Jerison, 1994. "Optimal Income Distribution Rules and Representative Consumers," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 739-771.
    3. John K.-H. Quah, 2000. "The Monotonicity of Individual and Market Demand," Econometrica, Econometric Society, vol. 68(4), pages 911-930, July.
    4. repec:dau:papers:123456789/6427 is not listed on IDEAS
    5. Mattei, Aurelio, 2000. "Full-scale real tests of consumer behavior using experimental data," Journal of Economic Behavior & Organization, Elsevier, vol. 43(4), pages 487-497, December.
    6. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July.
    7. Evstigneev, I. V. & Hildenbrand, W. & Jerison, M., 1997. "Metonymy and cross-section demand," Journal of Mathematical Economics, Elsevier, vol. 28(4), pages 397-414, November.
    8. Kihlstrom, Richard E & Mas-Colell, Andreu & Sonnenschein, Hugo, 1976. "The Demand Theory of the Weak Axiom of Revealed Preference," Econometrica, Econometric Society, vol. 44(5), pages 971-978, September.
    9. Jerison, David & Jerison, Michael, 1993. "Approximately Rational Consumer Demand," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 217-241, April.
    10. P. A. Chiappori & I. Ekeland, 1999. "Aggregation and Market Demand: An Exterior Differential Calculus Viewpoint," Econometrica, Econometric Society, vol. 67(6), pages 1435-1458, November.
    11. John K.-H. Quah, 2000. "The Weak Axiom and Comparative Statics," Econometric Society World Congress 2000 Contributed Papers 0437, Econometric Society.
    12. Hildenbrand, W. & Kneip, A., 1999. "Demand aggregation under structural stability," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 81-109, February.
    13. Evstigneev, I. V. & Hildenbrand, W. & Jerison, M., 1997. "Metonymy and cross-section demand," Journal of Mathematical Economics, Elsevier, vol. 28(4), pages 397-414, November.
    14. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
    15. Hildenbrand, Werner & Kneip, Alois, 1993. "Family expenditure data, heteroscedasticity and the Law of Demand," Ricerche Economiche, Elsevier, vol. 47(2), pages 137-165, June.
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    Cited by:

    1. Michael Jerison & John K.-H. Quah, 2006. "Law of Demand," Discussion Papers 06-07, University at Albany, SUNY, Department of Economics.

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