The non-existence of representative agent
We characterize environments in which there exists a representative agent: an agent who inherits the structure of preferences of the population that she represents. The existence of such a representative agent imposes strong restrictions on individual utility functions—requiring them to be linear in the allocation and additively separable in any parameter that characterizes agents’ preferences (e.g., a risk aversion parameter, a discount factor, etc.). Commonly used classes of utility functions (exponentially discounted utility functions, CRRA or CARA utility functions, logarithmic functions, etc.) do not admit a representative agent.
The Non-Existence of Representative Agents
Authors: Matthew O. Jackson, Leeat Yariv
From: Stanford University, Princeton University
Heterogeneity at work
Cynthia Doniger in this paper assesses the response to monetary policy shocks of both employment and allocative wages across education groups. She finds that:
- The less educated respond to monetary policy shocks on the employment margin while the more educated respond on the wage margin;
- As a result conventional monetary policy easing reduces employment inequality but increases wage inequality.
- Models that include heterogeneity point to larger welfare losses caused by monetary policy fluctuations as compared to models with a representative agent.
Do Greasy Wheels Curb Inequality?
Author: Cynthia L. Doniger
From: Federal Reserve Board
