Roy-Consistent Expectations

Marie Allard, Camille Bronsard and Yves Richelle

The Review of Economic Studies, 1990, vol. 57, issue 4, 661-675

Abstract: In this paper two results are presented. Both refer to the impossibility theorem of Polemarchakis (1983). The Slutsky matrix of intratemporal and intertemporal substitution effects, associated with the individual short-run demand functions, is not arbitrary but symmetric if expectations are (strongly) Roy-consistent (and if the short-run marginal utility of income is continuously differentiable). The same matrix is symmetric and negative semi-definite under strong Royconsistency and a restriction on the expected second-order variation of future real income. These two results suppose a preliminary axiomatization of expectation functions. Weak and strong Roy-consistency are defined within this axiomatization.

Date: 1990
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