Aggregation with price variation and heterogeneity across consumers
Working paper
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http://hdl.handle.net/11250/180691Utgivelsesdato
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- Discussion Papers [1004]
Sammendrag
Abstract:
In the aggregation literature, prices and price and income derivatives are often assumed not to vary
across consumers. These assumptions may not be fulfilled: prices often vary and consumers are
heterogeneous in the way they respond to price and income changes. In this paper we develop and
illustrate a framework for consistent aggregation over consumers within an Almost Ideal Demand
System (AIDS) model where prices, total expenditure and the response to these variables vary
across consumers. We show how the frameworks previously discussed in the literature on
aggregation of an AIDS model may be written as a special case within this general framework. The
method may easily be adapted to any functional form.