The Available Scope of the Assumption of Representative Agent

Abstract

In the statistical physics, each microstate must be permitted by the Newton equations (or Schrodinger equations). Likewise, each microstate of economic system must be allowed by the general equilibrium theory. Our study shows that the competitive economy, over a long time scale, would produce a large number of general equilibria each of which can be regarded as a possible microstate of this economy. Then by the principle of maximum entropy, we can obtain the most probable macrostate, which is shown as the revenue distribution of a society. In particular, we verify that the “assumption of representative agent” in modern micro-founded macroeconomics only holds in an ideal situation where the perfect competition involving a single industry is taken into account.