Attack of the Clones: The Representative Agent and Welfare Analysis

This paper examines the effects of alternative distributional assumptions on aggregating across individuals with an identical utility function: so-called ”clones”. The standard representative agent paradigm is shown to be a special case, which is only satisfied under stringent distributional assumptions. Alternative, and more realistic distributional assumptions can produce vastly different estimates of welfare costs in a simple consumption model. The sensitivity of welfare measures to distributional assumptions casts doubt on the accuracy and usefulness of cardinal representations of per capita welfare derived from the standard representative agent framework. ∗Economics Section, Cardiff Business School, Aberconway Building, Colum Drive, Cardiff, CF10 3EU, United Kingdom. Tel 44 (0) 29 2087 4410. E-mail:[email protected]