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Behavioral Heterogeneity in Large Economies

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  • Gael Giraud
  • Isabelle Maret

Abstract

Grandmont\'s ([14]) notion of behavioral heterogeneity is reformulated in a non parametric set-up such that the space of budget share functions admits a ``uniform\'\' probability distribution. If the population is distributed according to this measure, the aggregate budget share function is constant with respect to changes in prices and income. This exact insensitivity of the market budget share function is known to imply uniqueness and global stability of any competitive equilibrium. Here, it is not explained by any insensitivity property at the micro-economic level, but rather by a perfect \'balancing effect\'. Eventually, it is proved that the insensitivity property holds approximately for a finite population sufficiently close to, but distinct from, the perfectly heterogenous one.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2001-08.

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Date of creation: 2001
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Handle: RePEc:ulp:sbbeta:2001-08
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Keywords: Aggregation of demand; behavioral heterogeneity; large economy; Law of Demand; Insensitivity of market budget shares.;

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Find related papers by JEL classification:
  • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • D30 - Microeconomics - - Distribution - - - General
  • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
  • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
  • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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  1. Kirman, Alan, 1989. "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes," Economic Journal, Royal Economic Society, vol. 99(395), pages 126-39, Supplemen.
  2. Mertens, J.-F., 1988. "Stable equilibria - a reformulation," CORE Discussion Papers 1988038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Hildenbrand, K., 1998. "On J.M. Grandmont's Modelling of Behavioral Heterogeneity," Discussion Paper Serie A 580, University of Bonn, Germany.
  4. POLEMARCHAKIS, Heracles M. & CHIAPPORI, P. A. & KUBLER, F. & EKELAND, I., 2000. "The identification of preferences from equilibrium prices under uncertainty," Les Cahiers de Recherche 689, HEC Paris.
  5. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
  6. Bottazzi, Jean-Marc & Hens, Thorsten, 1996. "Excess Demand Functions and Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 68(1), pages 49-63, January.
  7. Marhuenda, F, 1995. "Distribution of Income and Aggregation of Demand," Econometrica, Econometric Society, vol. 63(3), pages 647-66, May.
  8. 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.
  9. Mas-Colell, Andreu & Neuefeind, Wilhelm, 1977. "Some Generic Properties of Aggregate Excess Demand and an Application," Econometrica, Econometric Society, vol. 45(3), pages 591-99, April.
  10. CALVET, Laurent & GRANDMONT, Jean-Michel & LEMAIRE, Isabelle, 1998. "Heterogeneous probabilities in complete asset markets," CORE Discussion Papers 1998019, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Takeshi Momi, . "Excess Demand Functions with Incomplete Markets - A Global Result," IEW - Working Papers 096, Institute for Empirical Research in Economics - University of Zurich.
  12. John K.-H. Quah, 1997. "The Law of Demand when Income Is Price Dependent," Econometrica, Econometric Society, vol. 65(6), pages 1421-1442, November.
  13. Dierker, Egbert & Dierker, Hildegard & Trockel, Walter, 1984. "Price-dispersed preferences and C1 mean demand," Journal of Mathematical Economics, Elsevier, vol. 13(1), pages 11-42, April.
  14. repec:cup:cbooks:9780521335614 is not listed on IDEAS
  15. de Villemur, E.B., 1998. "Heterogeneity and Stability: Variations on Scarf's Processes," Economics Working Papers eco98/38, European University Institute.
  16. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July.
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Cited by:

  1. John Quah & Gael Giraud, 2002. "Heterotic Models of Aggregate Demand," Economics Series Working Papers 2002-W18, University of Oxford, Department of Economics.
  2. Werner Hildenbrand & Alois Kneip, 2005. "On behavioral heterogeneity," Economic Theory, Springer, vol. 25(1), pages 155-169, 01.

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