IDEAS home Printed from https://ideas.repec.org/a/spr/etbull/v8y2020i2d10.1007_s40505-019-00180-6.html
   My bibliography  Save this article

Hicksian complementarity and perturbed utility models

Author

Listed:
  • Roy Allen

    (University of Western Ontario)

  • John Rehbeck

    (The Ohio State University)

Abstract

This paper studies aggregate complementarity without price or income variation. We show that for a class of utility functions, variation in non-price observables allows one to recover a measure of complementarity similar to Hicksian complementarity. In addition, the entire Slutsky matrix can be recovered up to scale without price variation. We then examine aggregate complementarity in latent utility models used in discrete choice, bundles, and matching. We show that classical linear instrumental variables can recover Hicksian complementarity for the special case of quadratic utility.

Suggested Citation

  • Roy Allen & John Rehbeck, 2020. "Hicksian complementarity and perturbed utility models," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 245-261, October.
    • Handle: RePEc:spr:etbull:v:8:y:2020:i:2:d:10.1007_s40505-019-00180-6
    DOI: 10.1007/s40505-019-00180-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40505-019-00180-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s40505-019-00180-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paola Manzini & Marco Mariotti & Levent Ülkü, 2019. "Stochastic Complementarity," The Economic Journal, Royal Economic Society, vol. 129(619), pages 1343-1363.
    2. Mogens Fosgerau & André de Palma & Julien Monardo, 2018. "Demand Models for Differentiated Goods with Complementarity and Substitutability," Discussion Papers 18-02, University of Copenhagen. Department of Economics.
    3. Jeremy T. Fox & Chenyu Yang & David H. Hsu, 2018. "Unobserved Heterogeneity in Matching Games," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1339-1373.
    4. Daniel L. McFadden & Mogens Fosgerau, 2012. "A theory of the perturbed consumer with general budgets," NBER Working Papers 17953, National Bureau of Economic Research, Inc.
    5. Jörg Rieskamp & Jerome R. Busemeyer & Barbara A. Mellers, 2006. "Extending the Bounds of Rationality: Evidence and Theories of Preferential Choice," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 631-661, September.
    6. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, May.
    7. Zentner, Alejandro, 2006. "Measuring the Effect of File Sharing on Music Purchases," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 63-90, April.
    8. Josef Hofbauer & William H. Sandholm, 2002. "On the Global Convergence of Stochastic Fictitious Play," Econometrica, Econometric Society, vol. 70(6), pages 2265-2294, November.
    9. Schennach, Susanne & White, Halbert & Chalak, Karim, 2012. "Local indirect least squares and average marginal effects in nonseparable structural systems," Journal of Econometrics, Elsevier, vol. 166(2), pages 282-302.
    10. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
    11. Arora, Ashish, 1996. "Testing for complementarities in reduced-form regressions: A note," Economics Letters, Elsevier, vol. 50(1), pages 51-55, January.
    12. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
    13. Felix Oberholzer-Gee & Koleman Strumpf, 2007. "The Effect of File Sharing on Record Sales: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 1-42.
    14. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
    15. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    16. Matthew Gibson & Jeffrey Shrader, 2018. "Time Use and Labor Productivity: The Returns to Sleep," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 783-798, December.
    17. Eugene Choo & Aloysius Siow, 2006. "Who Marries Whom and Why," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 175-201, February.
    18. Athey, Susan. & Stern, Scott, 1969-, 1998. "An empirical framework for testing theories about complementarity in orgaziational design," Working papers WP 4022-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    19. Howard, David H, 1977. "Rationing, Quantity Constraints, and Consumption Theory," Econometrica, Econometric Society, vol. 45(2), pages 399-412, March.
    20. Pierre-André Chiappori & Bernard Salanié, 2016. "The Econometrics of Matching Models," Journal of Economic Literature, American Economic Association, vol. 54(3), pages 832-861, September.
    21. Drew Fudenberg & Ryota Iijima & Tomasz Strzalecki, 2015. "Stochastic Choice and Revealed Perturbed Utility," Econometrica, Econometric Society, vol. 83, pages 2371-2409, November.
    22. Chambers, Christopher P. & Echenique, Federico, 2009. "Supermodularity and preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1004-1014, May.
    23. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
    24. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
    25. Sharon Novak & Scott Stern, 2009. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," Management Science, INFORMS, vol. 55(2), pages 311-332, February.
    26. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-1289, December.
    27. Amir, Rabah & Erickson, Philip & Jin, Jim, 2017. "On the microeconomic foundations of linear demand for differentiated products," Journal of Economic Theory, Elsevier, vol. 169(C), pages 641-665.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roy Allen & John Rehbeck, 2020. "Identification of Random Coefficient Latent Utility Models," Papers 2003.00276, arXiv.org.
    2. Mohnen, Pierre & Roller, Lars-Hendrik, 2005. "Complementarities in innovation policy," European Economic Review, Elsevier, vol. 49(6), pages 1431-1450, August.
    3. André de Palma & Julien Monardo, 2017. "The General Nesting Logit (GNL) Model using Aggregate Data," Working Papers hal-01552455, HAL.
    4. Mogens Fosgerau & Julien Monardo & André de Palma, 2019. "The Inverse Product Differentiation Logit Model," Working Papers hal-02183411, HAL.
    5. Roy Allen & John Rehbeck, 2023. "Revealed stochastic choice with attributes," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(1), pages 91-112, January.
    6. Hottenrott, Hanna & Rexhäuser, Sascha & Veugelers, Reinhilde, 2012. "Green innovations and organizational change: Making better use of environmental technology," ZEW Discussion Papers 12-043, ZEW - Leibniz Centre for European Economic Research.
    7. Steve Berry & Ahmed Khwaja & Vineet Kumar & Andres Musalem & Kenneth Wilbur & Greg Allenby & Bharat Anand & Pradeep Chintagunta & W. Hanemann & Przemek Jeziorski & Angelo Mele, 2014. "Structural models of complementary choices," Marketing Letters, Springer, vol. 25(3), pages 245-256, September.
    8. Charles Hoffreumon & Chris CM Forman & Nicolas van Zeebroeck, 2023. "Make or Buy your Artificial Intelligence? Complementarities in Technology Sourcing," Working Papers TIMES² 2023-69, ULB -- Universite Libre de Bruxelles.
    9. Charles Hoffreumon & Chris Forman & Nicolas van Zeebroeck, 2024. "Make or buy your artificial intelligence? Complementarities in technology sourcing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(2), pages 452-479, March.
    10. Hottenrott, Hanna & Rexhäuser, Sascha & Veugelers, Reinhilde, 2016. "Organisational change and the productivity effects of green technology adoption," Resource and Energy Economics, Elsevier, vol. 43(C), pages 172-194.
    11. Allen, Roy & Rehbeck, John, 2022. "Latent complementarity in bundles models," Journal of Econometrics, Elsevier, vol. 228(2), pages 322-341.
    12. Goodhue, Rachael E. & Rausser, Gordon C., 2003. "Value Differentiation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(3), pages 1-21, December.
    13. Antonioli, Davide & Mancinelli, Susanna & Mazzanti, Massimiliano, 2013. "Is environmental innovation embedded within high-performance organisational changes? The role of human resource management and complementarity in green business strategies," Research Policy, Elsevier, vol. 42(4), pages 975-988.
    14. Natalia Lazzati & John K.-H. Quah & Koji Shirai, 2018. "Nonparametric analysis of monotone choice," Discussion Paper Series 184, School of Economics, Kwansei Gakuin University.
    15. Martin Carree & Boris Lokshin & René Belderbos, 2011. "A note on testing for complementarity and substitutability in the case of multiple practices," Journal of Productivity Analysis, Springer, vol. 35(3), pages 263-269, June.
    16. López, Alberto, 2012. "Productivity effects of ICTs and organizational change: A test of the complementarity hypothesis in Spain," MPRA Paper 40400, University Library of Munich, Germany.
    17. Uttiya Paul & Tarun Sabarwal, 2023. "Directional monotone comparative statics in function spaces," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 153-169, April.
    18. Leiponen, Aija, 2002. "Competencies and Firm Performance - Increasing Returns from Knowledge Complementaries?," Discussion Papers 703, The Research Institute of the Finnish Economy.
    19. Barclay, Michael J. & Marx, Leslie M. & Smith, Clifford Jr., 2003. "The joint determination of leverage and maturity," Journal of Corporate Finance, Elsevier, vol. 9(2), pages 149-167, March.
    20. Mogens Fosgerau & Mads Paulsen & Thomas Kj{ae}r Rasmussen, 2021. "A perturbed utility route choice model," Papers 2103.13784, arXiv.org, revised Sep 2021.

    More about this item

    Keywords

    Hicksian complementarity; Demand; Instrumental variables;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:etbull:v:8:y:2020:i:2:d:10.1007_s40505-019-00180-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.