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Revealed Preferences in a Heterogeneous Population

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  • Stefan Hoderlein

    (Boston College)

  • Jörg Stoye

    ()
    (New York University)

Abstract

This paper explores the empirical content of the weak axiom of revealed preference (WARP) for repeated cross-sectional data or for panel data where individuals experience preference shocks. Specifically, in a heterogeneous population, think of the fraction of consumers violating WARP as the parameter of interest. This parameter depends on the joint distribution of choices over different budget sets. Repeated cross-sections do not reveal this distribution but only its marginals. Thus, the parameter is not point identified but can be bounded. We frame this as a copula problem and use copula techniques to analyze it. The bounds, as well as some nonparametric refinements of them, correspond to intuitive behavioral assumptions in the two goods case. With three or more goods, these intuitions break down, and plausible assumptions can have counterintuitive implications. Inference on the bounds is an application of partial identification through moment inequalities. We implement our analysis with the British Family Expenditure Survey (FES) data. Upper bounds are fre- quently positive but lower bounds not significantly so, hence FES data are consistent with WARP in a heterogeneous population.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 745.

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Date of creation: 13 Aug 2009
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Handle: RePEc:boc:bocoec:745

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Related research

Keywords: Revealed Preference; Weak Axiom; Heterogeneity; Partial Identification; Moment Inequalities.;

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Cited by:
  1. Mark Dean & Daniel Martin, 2011. "Testing for Rationality with Consumption Data: Demographics and Heterogeneity," Working Papers 2011-11, Brown University, Department of Economics.
  2. Jerry Hausman & Whitney Newey, 2013. "Individual heterogeneity and average welfare," CeMMAP working papers CWP34/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Yuichi Kitamura & Jorg Stoye, 2013. "Nonparametric Analysis of Random Utility Models: Testing," Cowles Foundation Discussion Papers 1902, Cowles Foundation for Research in Economics, Yale University.
  4. Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK & Frederic VERMEULEN, 2014. "Household consumption when the marriage is stable," Center for Economic Studies - Discussion papers ces14.08, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  5. Sokbae Lee & Kyungchul Song & Yoon-Jae Whang, 2014. "Testing For A General Class Of Functional Inequalities," KIER Working Papers 889, Kyoto University, Institute of Economic Research.
  6. Richard Blundell & Joel Horowitz & Matthias Parey, 2013. "Nonparametric estimation of a heterogeneous demand function under the Slutsky inequality restriction," CeMMAP working papers CWP54/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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