Representative agent models have become a predominant means of studying the macroeconomy in modern economics. Suprisingly, there has been little discussion in macroeconomic literature about the propriety or usefulness of such models. This volume aims to evaluate the use of these models in macroeconomics.
Examining the comments made by new classical economists, the book identifies three related justifications for modern use of representative agent models: they are a way of avoiding the Lucas critique, they aid in the construction of Walrasian models and provide microfoundations for macroeconomics. The author illustrates how the representative agent model is inadequate to these tasks: it does not solve the Lucas critique, does not help create good Walrasian models and does not provide microfoundations. He evaluates these goals themselves, finding that the Lucas critique is unworkable in its present form, Walrasian methodology is not particularly useful for macroeconomic study and rigorous microfoundations of the sort representative agent models are presumed to provide are neither possible nor particularly desirable. Representative agent models are, therefore, neither a proper nor a particularly useful means of studying aggregate behaviour.