Welfare - Vol. 1: Aggregate Consumer Behavior

This volume presents a new approach to econometric modeling of aggregateconsumer behavior. The approach has successfully extricated demand modeling from thehighly restrictive framework provided for more than half a century by the model of arepresentative consumer. Like the representative consumer model that preceded it, the new approach rests on the theory of individual behavior. The centerpiece of thevolume is an econometric model of demand obtained by aggregating over a populationof utility-maximizing consumers.The essential innovation is to incorporateattributes of consumers reflecting heterogeneous preferences into a model ofaggregate behavior. Heterogeneity is captured by allowing preferences to depend onthe demographic characteristics of households. This model unifies the two principalstreams of empirical research on consumer behavior by pooling aggregate time serieswith cross-section data for individual households and provides a new point ofdeparture for future research.