New Developments in Aggregation Economics

Abstract

The goal of this article is to provide a general characterization of the aggregate behavior of a group in a market environment. We allow for public and private consumption, intragroup production, and consumption externalities within a group; we only assume that the group always reaches Pareto-efficient decisions. We show that aggregation problems involve a simple mathematical structure: The aggregate demand of the group, considered as a vector field, can be decomposed into a sum of gradients. We briefly introduce exterior differential calculus as a tool to study this structure. We analyze two main issues. One is testability: What restrictions (if any) on the aggregate demand function characterize the efficient behavior of the group? The second issue relates to identifiability; we investigate the conditions under which it is possible to recover the underlying structure—namely, individual preferences, the decision process, and the resulting intragroup transfers—from the group's aggregate behavior.