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Gorman revisited: nonparametric conditions for exact linear aggregation
Laurens Cherchye1, Ian Crawford2, Bram De Rock3
1Center for Economic Studies, University of Leuven, E. Sabbelaan 53, 8500 Kortrijk, Belgium.
Series : Journal of the Spanish Economic Association
|August 12, 2016
Summary
This study characterizes exact linear aggregation, simplifying aggregate demand functions. Empirical findings challenge the notion of a few representative agents, supporting models with diverse economic actors.
Area of Science:
- Economics
- Econometrics
Background:
- Revealed preference theory is foundational in microeconomics.
- Exact linear aggregation simplifies macroeconomic modeling by linking aggregate demand to prices and income.
Purpose of the Study:
- To provide a revealed preference characterization of exact linear aggregation.
- To establish nonparametric conditions for Gorman Polar Form preferences.
- To empirically test the representative agent hypothesis.
Main Methods:
- Utilizing revealed preference theory.
- Applying nonparametric conditions for preference representation.
- Empirical analysis of a Spanish microdata panel.
Main Results:
- A revealed preference characterization of exact linear aggregation is established.
- Nonparametric conditions for Gorman Polar Form preferences are derived.
- Empirical evidence strongly refutes the existence of a limited set of representative agents.
Conclusions:
- The findings support the use of macroeconomic models with a continuum of heterogeneous agents.
- This research complements existing work on aggregation and preferences.
- The empirical application highlights the practical utility of the theoretical results.
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