SFB 303 Discussion Paper No. A - 483

Author: Maret, Isabelle
Title: Joint Distribution of Demand Functions and Price Expectation Functions, and Structural Properties of Market Demand
Abstract: Structural Properties of the demand of a large population introduced by the aggregation process are studied. The idea is to consider assumptions on the distribution of household characteristics rather than focusing on the modelling of individual behavior. By opposite to the existing literature where the Law of Demand is deduced from distributional requirements, the expectation about future prices are explicitely introduced in the household decision rule. Hence, heterogeneity of household behavior can be interpreted as reflecting heterogeneity in tastes and risk aversion which generates the distribution of demand functions and heterogeneity of the expectation rules which generates the distribution of expectation functions. It is proved that the introduction of assumptions on the distribution of these expectations rules (in addition to reasonable assumptions on the distribution of demand functions) allow to give an account of the Law of Demand, independently of strong restrictions on the Jacobian matrix of market demand.
Keywords: Distribution of Household Characteristics, Multi-period Decision Program, Expectation Rule, Demand Aggregation, Slutsky Substitution Effect, Income Effect, Intertemporal Effect, Law of Demand
JEL-Classification-Number: D11, D30, D41, D91
Creation-Date: February 1995
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