SFB 303 Discussion Paper No. A-439
Author:
Jerison, Michael
Title: Optimal Income Distribution Rules and Representative Consumers
Abstract: This paper derives observable properties of economies with
optimal income distribution rules that specify consumersī incomes as
functions of aggregate income and prices. Optimality implies that the
aggregate demand function is generated by a single "representative"
consumer, cf. Saumelson (1956). We derive an additional implication which,
when consumers receice fixed shares of aggregate income, requires that the
consumersī demands become more dispersed when aggregate income rises. This
last condition has empirical support. The results relate the representative
consumerīs preferences to a version of Kaldorīs compensation criterion and
show when both can be used for normative analysis without internal
inconsistency.
Keywords: social welfare, representative consumer, increasing dispersion, income
distribution
JEL-Classification-Number: D11, D60, D31
Creation-Date: February 1994
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