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Modeling Behavioral Heterogeneity in Demand Theory

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  • Isabelle MARET

Abstract

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.

Suggested Citation

  • Isabelle MARET, 2001. "Modeling Behavioral Heterogeneity in Demand Theory," Working Papers of BETA 2001-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2001-04
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    File URL: http://www.beta-umr7522.fr/productions/publications/2001/2001-04.pdf
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    References listed on IDEAS

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    1. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
    2. John K.-H. Quah, 1997. "The Law of Demand when Income Is Price Dependent," Econometrica, Econometric Society, vol. 65(6), pages 1421-1442, November.
    3. Werner Hildenbrand & Alois Kneip, 1999. "Behavioral Heterogeneity," Discussion Paper Serie A 589, University of Bonn, Germany.
    4. Hildenbrand, K., 1998. "On J.M. Grandmont's Modelling of Behavioral Heterogeneity," Discussion Paper Serie A 580, University of Bonn, Germany.
    5. de Villemur, E.B., 1998. "Heterogeneity and Stability: Variations on Scarf's Processes," Economics Working Papers eco98/38, European University Institute.
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    Cited by:

    1. Isabelle MARET, 2002. "Modeling Behavioral Heterogeneity in Demand Theory," Working Papers of BETA 2002-05, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    Keywords

    Aggregation; Behavioral heterogeneity; Large economy; Balancing effect; Insensitivity of maket budget shares to changes in prices and income.;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D30 - Microeconomics - - Distribution - - - General

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