Working Paper BETA #2002-22

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Title : Modelling Behavioral Heterogeneity

Author(s) : Gael GIRAUD, Isabelle MARET

Abstract : If one wants to get rid of the paradoxes pointed out by Hildenbrand (1998) and B. de Villemeur (1999), one needs to reformulate Grandmont's (1992) notion of behavioral heterogeneity such as to get exact insensitivity of the aggregate budget share function with respect to changes in prices and income, instead of a mere approximate insensitivity. Here, we propose a non parametric set-up such that, if the population is distributed according to some ``uniform'' measure, the aggregate budget share function is constant. This exact insensitivity is not explained by any insensitivity property at the micro-economic level, but rather by a perfect ``balancing effect''. We then discuss the economic interpretation of some concrete examples illustrating our theory.

Key-words : Aggregation of demand, behavioral heterogeneity, large economy, Law of Demand, Insensitivity of mark

JEL Classification : D11, D12, D30, D41, D50, E1