Economists use the term representative agent to refer to the typical decision-maker of a certain type (for example, the typical consumer, or the typical firm).
More technically, an economic model is said to have a representative agent if all agents of the same type are identical. Also, economists sometimes say a model has a representative agent when agents differ, but act in such a way that the sum of their choices is mathematically equivalent to the decision of one individual or many identical individuals. This occurs, for example, when preferences are Gorman aggregable. A model that contains many different agents whose choices cannot be aggregated in this way is called a heterogeneous agent model.
The notion of the representative agent can be traced back to the late 19th century. Francis Edgeworth (1881) used the term "representative particular", while Alfred Marshall (1890) introduced a "representative firm" in his Principles of Economics. However, after Robert Lucas, Jr.'s critique of econometric policy evaluation spurred the development of microfoundations for macroeconomics, the notion of the representative agent became more prominent and more controversial. Many macroeconomic models today are characterized by an explicitly stated optimization problem of the representative agent, which may be either a consumer or a producer (or, frequently, both types of representative agents are present). The derived individual demand or supply curves are then used as the corresponding aggregate demand or supply curves.
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Famous quotes containing the word agent:
“The agent never receipts his bill, puts his hat on and bows himself out. He stays around forever, not only for as long as you can write anything that anyone will buy, but as long as anyone will buy any portion of any right to anything that you ever did write. He just takes ten per cent of your life.”
—Raymond Chandler (1888–1959)