Behavioral Heterogeneity and the Law of Demand

Ralf Wilke

Discussion Papers in Economics from University of Dortmund, Department of Economics

Abstract: Consider an economy in which households differ in behavior and disposable income: (i) we derive conditions on the joint distribution of both characteristics such that the Law of Demand holds for aggregate demand. We obtain that the poorer the household the less its behavior affects the structure of aggregate demand. (ii) we introduce a new concept of behavioral differences. By construction, it is not subject to recent criticism on existing concepts of behavioral heterogeneity (Grandmont, 1992, Kneip, 1999, Hildenbrand and Kneip, 1999). (iii) We introduce the degree of behavioral differences which improves a poor property of the coefficient of sensitivity and of the degree of behavioral heterogeneity. (This version: May, 2002)

Keywords: demand theory; behavioral heterogeneity; behavioral differences; aggregation (search for similar items in EconPapers)
Pages: 32 pages
Date: 2001-04
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