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Demand Dispersion, Metonymy and Ideal Panel Data

  • Michael Jerison

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.

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File URL: http://www.albany.edu/economics/research/workingp/2001/panel.pdf
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 01-11.

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Date of creation: 2001
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Handle: RePEc:nya:albaec:01-11
Contact details of provider: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

Order Information: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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  1. 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 971-78, September.
  2. Jerison, Michael, 1994. "Optimal Income Distribution Rules and Representative Consumers," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 739-71, October.
  3. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
  4. Hildenbrand, Werner & Kneip, Alois, 1993. "Family expenditure data, heteroscedasticity and the Law of Demand," Ricerche Economiche, Elsevier, vol. 47(2), pages 137-165, June.
  5. Jerison, David & Jerison, Michael, 1993. "Approximately Rational Consumer Demand," Economic Theory, Springer, vol. 3(2), pages 217-41, April.
  6. Chiappori, Pierre-André & Ekeland, Ivar, 1999. "Aggregation and Market Demand: An Exterior Differential Calculus Viewpoint," Economics Papers from University Paris Dauphine 123456789/6427, Paris Dauphine University.
  7. 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.
  8. Hildenbrand, W. & Kneip, A., 1999. "Demand aggregation under structural stability," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 81-109, February.
  9. Igor V. Evstigneev & Werner Hildenbrand & Michael Jerison, 1995. "Metonymy and Cross Section Demand," Discussion Paper Serie A 469, University of Bonn, Germany.
  10. John K.-H. Quah, 2000. "The Weak Axiom and Comparative Statics," Econometric Society World Congress 2000 Contributed Papers 0437, Econometric Society.
  11. John K.-H. Quah, 2000. "The Monotonicity of Individual and Market Demand," Econometrica, Econometric Society, vol. 68(4), pages 911-930, July.
  12. Michael Jerison, 1998. "Dispersed Excess Demands, the Weak Axiom and Uniqueness of Equilibrium," Discussion Papers 98-03, University at Albany, SUNY, Department of Economics.
  13. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July.
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