ABSTRACT
In much economic theory and most applied work in economic modelling, there is a problem of aggregation. Economic theories generally focus on the behaviour of individuals (consumers or entrepreneurs) or groups such as owners of capital and labour, while empirical economic research is concerned primarily with the relationships between groups. Nearly every study must aggregate over time, over individual people, firms, or agents, over products and techniques, and over space, usually over most of these dimensions. Take the analysis of consumer expenditure as an example of a widely researched area in applied econometrics. Most studies use national expenditure data derived in part from household surveys. The analysis, if time-series, invariably involves temporal aggregation over months, quarters, or years; it will cover large numbers of decision-making units in the form of households and individuals; even if disaggregated, the product groups may cover many thousands of goods (defined as items of value, two equal quantities of which are completely equivalent as regards all characteristics, including location, for each seller and buyer); and the analysis will usually assume that all spending is located at one point in space. Similar considerations also apply to the analysis of firms, and even public institutions.
