HETEROGENEITY BIASES, DISTRIBUTIONAL EFFECTS, AND AGGREGATE CONSUMPTION - AN EMPIRICAL-ANALYSIS USING STRATIFIED MICRODATA

Using stratified microdata from the Canadian FAMEX (78-86) surveys, th is paper investigates whether observed heterogeneity in marginal prope nsities to consume across strata actually hinders the aggregation proc ess. Despite significant heterogeneity in marginal responses, the dive rgences between aggregate predicted consumption and the predictions fr om a model that uses average strata responses are found to be small, w henever the strata demands are approximatively linear at the mean and the commodity group considered is not a luxury good. On the other hand , some cross-sectional estimates obtained by pooling the strata are sh own to be contaminated by unwanted cross-moments. Further, the analysi s reconciles the fact that while there exists significant heterogeneit y in consumer demands, the related distributional effects in the aggre gate equation have not been found to be important.