Chapter

Theoretical Foundations

Angus Deaton

in Understanding Consumption

Published in print October 1992 | ISBN: 9780198288244
Published online November 2003 | e-ISBN: 9780191596131 | DOI: http://dx.doi.org/10.1093/0198288247.003.0001

Series: Clarendon Lectures in Economics

 Theoretical Foundations

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Reviews the basic micro‐foundations of intertemporal choice under uncertainty, and considers the implications for the macroeconomic aggregates of consumption and savings. It also reviews the practical implications of different utility specifications. It is also shown how to derive the fundamental result that consumption follows a martingale. The chapter concludes by reviewing the relationship between the microeconomic theory and models that work with a representative agent model.

Keywords: composite goods; consumption; dynamic inconsistency; incomplete markets; intertemporal choice; martingale; preference additivity; representative agent; uncertainty; utility specification

Chapter.  18414 words. 

Subjects: Macroeconomics and Monetary Economics

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