Modeling Behavioral Heterogeneity in Demand Theory
This paper is a first step in answering B. Villemeur\'s (1998,1999) and Hildenbrand\'s (1998) criticism of the notions of behavioral heterogeneity introduced in demand theory by Grandmont (1992) and Kneip (1999). As in the Grandmont-Kneip approach, we define a notion of behavioral heterogeneity such that if the population is sufficiently heterogeneous, the aggregate budget share function is proved to become insensitive to changes in prices and income. However, in contrast to the aforementioned literature, this insensitivity in the aggregate is not explained by any insensitivity property at the microeconomic level, but rather by a ``balancing effect\'\' : For any commodity, the negative effect on market budget share induced after a change in prices or income by individuals who decrease their budget share is compensated by the existence of individuals who increase their budget share.
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- Hildenbrand, K., 1998. "On J.M. Grandmont's Modelling of Behavioral Heterogeneity," Discussion Paper Serie A 580, University of Bonn, Germany.
- John K.-H. Quah, 1997. "The Law of Demand when Income Is Price Dependent," Econometrica, Econometric Society, vol. 65(6), pages 1421-1442, November.
- Werner Hildenbrand & Alois Kneip, 1999. "Behavioral Heterogeneity," Discussion Paper Serie A 589, University of Bonn, Germany.
- de Villemur, E.B., 1998. "Heterogeneity and Stability: Variations on Scarf's Processes," Economics Working Papers eco98/38, European University Institute.
- Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
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