Transformations of the commodity space, behavioral heterogeneity, and the aggregation problem (Q1196655): Difference between revisions

The paper begins by considering affine transformations of the commodity space by blowing up the amount of each commodity \(h\) by a factor \(\alpha_ h\) [for a related transform, see \textit{A. Mas-Colell} and \textit{W. Neuefeind}, Econometrica 45, 591-599 (1977; Zbl 0368.90035) and \textit{E. Dierker}, \textit{H. Dierker} and \textit{W. Trockel}, J. Math. Econ. 13, 11-42 (1984; Zbl 0577.90007)] and the linear structures induced on preferences and demand functions. Aggregation of individual demand functions to obtain aggregate demand functions when income is independent of prices is taken up next. Bounds are provided to the partial derivatives of aggregate demand in terms of the conditional distributions over vectors of parameter \(\alpha\). It is then shown that when every commodity is desired in the aggregate, total market demand has a negative dominant diagonal Jacobian matrix on a set of prices that fills the whole price space as the degree of behavioural heterogeneity in the system grows. These methods are applied next to a private ownership pure exchange economy where incomes are dependent on prices. In this case, aggregate desirability and behavioural heterogeneity yield aggregate excess demands which satisfy gross substitutability on a set of prices; as before the size of this set increases with the degree of behavioural heterogeneity in the system. These considerations have therefore deep implications for the uniqueness and the stability of competitive equilibrium.