Errors of aggregation and errors of specification in a consumer demand model: a theoretical note

Authors: Denton, Frank T.¹; Mountain, Dean C.²; Spencer, Byron G¹

Source: Canadian Journal of Economics, Volume 39, Number 4, November/novembre 2006 , pp. 1398-1407(10)

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Abstract:

Abstract.

Consumer demand models based on the concept of a representative or average consumer suffer from aggregation error. Misspecification of the underlying micro utility-maximizing model, which is virtually inevitable, also results in error. This note provides a theoretical investigation of the relationship between the two types of error. Misspecified expenditure support functions for demand systems at the micro level induce the same misspecified structure in the corresponding expenditure functions at the macro level, and the errors at the two levels are shown to be of similar order.

Keywords: D11

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1540-5982.2006.00395.x

Affiliations: 1: Department of Economics, McMaster University 2: De Groote School of Business, McMaster University

Publication date: 2006-11-01