Income distribution, price elasticity and the 'Robinson Effect' - 2002

Corrado Benassi , Alessandra Chirco Full Version (PDF)
(Quaderni del Dipartimento di Scienze Economiche e Matematico-Statistiche dell'Università del Salento - Collana di Economia, 35/17 / 2002)
In The Economics of Imperfect Competition, Joan Robinson argued that an increase of the consumers' incomes should make demand less elastic - which, though reasonable about individual demand as an assumption on preferences, suggests a role for income distribution as far as market demand is concerned. We model increases in aggregate income as first-order stochastic dominance shifts of the income distribution, and use Esteban's (1986) income share elasticity to provide sufficient conditions on income distribution that support the `Robinson effect' - i.e., such that a negative (positive) relationship between indivual income and price elasticity translates into a negative (positive) relationship between mean income and market demand elasticity. The paper also provides a framework to study the effects of distributive shocks on the price elasticity of market demand.

Table of Contents


Introduction     PDF
Corrado Benassi , Alessandra Chirco 2-3

Income distribution and demand elasticity     PDF
Corrado Benassi , Alessandra Chirco 3-6

First order stochastic dominance     PDF
Corrado Benassi , Alessandra Chirco 6-10

Concluding remarks     PDF
Corrado Benassi , Alessandra Chirco 10-10

Bibliography     PDF
10-11

Appendix     PDF
12-13


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