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Behavioral Heterogeneity: Pareto Distributions of Homothetic Preference Scales and Aggregate Expenditures Income Elasticities

Author

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  • Jean-Michel Grandmont

    (ICEF, Department of Economics, University Cà Foscari di Venezia at San Giobbe, Italy, CREST (EXCESS, UMR CNRS 9194), University of Paris-Saclay, France, and Research Institute for Economics and Business Administration (RIEB), Kobe University, Japan)

Abstract
We evaluate the income elasticity of the aggregate budget share spent on a sub-group of commodities, in a competitive framework, by a continuum of agents having the same income, but heterogeneous behavior described by an "homothetic preferences scaling factor" having a bounded Pareto distribution in the population. If individual budget share increases globally significantly in the limit from low to large incomes, aggregate budget share is locally increasing with medium range incomes when the logarithm of the heterogeneity factor has an increasing (exponential) density with a large support. Aggregate income elasticity converges to that exponential density parameter when its support becomes infinitely large. Symmetric results hold in the decreasing case. Applications are made to market expenditures, wealth effects on portfolio choice with many risky assets, concave expenditures, that are compatible with standard (expected) utility maximization or other "behavioral" decision making processes.

Suggested Citation

  • Jean-Michel Grandmont, 2017. "Behavioral Heterogeneity: Pareto Distributions of Homothetic Preference Scales and Aggregate Expenditures Income Elasticities," Discussion Paper Series DP2017-31, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2017-31
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D30 - Microeconomics - - Distribution - - - General
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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