A Note on Behavioral Heterogeneity and Aggregation

The purpose of this note is to investigate how aggregation of households affects the variation of the index of heterogeneity as recently defined in Hildenbrand and Kneip (1999). We show the degree of heterogeneity of an entire population is at least as high as the smallest degree of heterogeneity of some disjoint subpopulation. We further derive conditions under which aggregation generates heterogeneity. Finally, we show that aggregation weakly generates heterogeneity. Therefore we offer a theoretical framework that helps answering the question how structural properties of aggregate demand are obtained due to aggregation. (This version: March, 2002)