Exact Aggregation and the Finite Basis Property

Abstract

The authors address the following two fundamental questions in the theory of exact aggregation: (1) What restrictions, if any, need to be imposed on the vector of aggregates in order that the aggregate demand functional representation be nontrivial and economically interesting? (2) What economic restrictions, if any, does exact aggregation impose on demand functions, both at the ind ividual and aggregate levels? The answer to the first question involv es the information censored or masked by the aggregates. The answer t o the second question involves a condition known as the finite basis property, and its implications for Engel curve similarity across pric es, commodities, and consumers. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.