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Preferences and the Dynamic Representative Consumer

This paper provides families of time-separable, twice continuously di?erentiable, and strictly concave utility functions of a group of consumers that are both su?cient and necessary in order to have linear aggregation in a single-commodity-type deterministic dynamic environment, in the presence of consumer wealth-, labor-productivity, and preference heterogeneity, for alternative settings where the rates of time preference can be the same or di?erent across consumers. The employed concept of linear aggregation pertains the existence of a representative consumer with a time-separable utility function. It is proved that when the rates of time preference are choice-independent and heterogeneous across consumers, a representative consumer exists if, and only if, the momentary utility functions of all consumers are exponential. Results are also provided for, (i) common across consumers choice-independent rates of time preference, and, (ii) heterogeneous choice-dependent rates of time preference, and compared with previously identi?ed su?cient conditions for aggregation in the existing literature.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0505.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0505.

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Date of creation: May 2005
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Handle: RePEc:vie:viennp:0505
Contact details of provider: Web page: http://www.univie.ac.at/vwl

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  1. Christopher Carroll, 2000. "Requiem For The Representative Consumer? Aggregate Implications Of Microeconomic Consumption Behavior," Computing in Economics and Finance 2000 320, Society for Computational Economics.
  2. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
  3. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April.
  4. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
  5. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
  6. Pollak, Robert A, 1971. "Additive Utility Functions and Linear Engel Curves," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 401-14, October.
  7. Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
  8. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
  9. Maliar, Lilia & Maliar, Serguei, 2001. "Heterogeneity in capital and skills in a neoclassical stochastic growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1367-1397, September.
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