A Solow model problem I am trying to solve asks me to assume that the economy consists of identical agents of mass 1. I have never heard of this term before, what does this mean?


1 Answer 1


In this example, "mass" means the same as "length". Let me try to explain it with a simple example.

If you work in a continuous setting, you have an infinite number of agents, which lie on a line between $0$ and $M$. Let's say individual consumption is given by the function $C(i)$, for all agents $i \in [0,M]$.

For total consumption, you have to integrate: $C = \int_0^M C(i)di$ (total consumption is the area under the graph). $M$ is the mass of all agents. In your example, $M$ is equal to 1.

This is not done for realism. Continuous agents are usually used when you want to introduce heterogeneity in a model. For instance, in the standard New Keynesian model (see, e.g., Walsh, Monetary Theory and Policy, chapter 8), households don't face one price, but a distribution of different prices, and hence also different demand.

  • $\begingroup$ I understand what you are trying to say, though I am trying to get my mind around how this relates to real life. Continuous setting with infinite number of agents is a bit mind boggling to me. Is it a correct interpretation that continuous agents in practice essentially means that a single agent has no say in the economy like perfect competition (since di is close to 0)? Is there anywhere I can learn more of models like this with continuous agents? Is there a term for models like these? I couldn't really find anything introductory on this. $\endgroup$ Commented Oct 28, 2021 at 10:02
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    $\begingroup$ @ShaikhAmmar I extended the answer to include your follow-up questions. You are right that single agents are infinitely small in this setting. $\endgroup$
    – Chris tie
    Commented Oct 29, 2021 at 11:48

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