Abstract
In this paper we assess the importance of individual heterogeneity for
understanding the relationships between economic aggregates. We highlight
three aspects: (i) heterogeneity in individual tastes, (ii) heterogeneity in
market participation and (iii) heterogeneity in (uninsurable) risks faced
by individuals. The central question addressed is whether one can track,
predict or explain variation in economic aggregates in a way that captures
the separate in
uences of behavioral responses and heterogeneity across
individuals. Recent solutions to aggregation problems in certain specic
application areas are presented. The aim is to address the concerns faced
by empirical researchers regarding questions of aggregation