Heterotic Models of Aggregate Demand
25 Pages Posted: 20 Jul 2002
A common theme in the theory of demand aggregation is that market demand can acquire properties which are not always individually present among the agents who make up the market, a phenomenon called it heterosis in this paper. This paper focusses on the well-known result that a suitable distribution of demand behavior (arising perhaps from the underlying distribution of preferences), market demand can become approximately a linear function of income or even take on approximate Cobb-Douglas properties. We highlight the mathematical arguments underpinning these models and show that in the right context, it is possible to carry the arguments further and achieve exact rather than just approximate results: exact Cobb-Douglas market demand or exact linearity of market demand with respect to income.
Keywords: Heterosis, heterogeneity, Cobb-Douglas, homotheticity, law of demand, aggregation
JEL Classification: D11, D50
Suggested Citation: Suggested Citation