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On behavioral complementarity and its implications

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  • Chambers, Christopher P.
  • Echenique, Federico
  • Shmaya, Eran

Abstract

We study the behavioral de nition of complementary goods: if the price of one good increases, demand for a complementary good must decrease. We obtain its full implications for observable demand behavior (its testable implications), and for the consumer's underlying preferences. We characterize those data sets which can be generated by rational preferences exhibiting complementarities. In a model in which income results from selling an endowment (as in general equilibrium models of exchange economies), the notion is surprisingly strong and is essentially equivalent to Leontief preferences. In the model of nominal income, the notion describes a class of preferences whose extreme cases are Leontief and Cobb-Douglas respectively.

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Bibliographic Info

Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 1270.

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Length: 35 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:clt:sswopa:1270

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Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
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  1. John Quah, 2002. "The Law of Demand and Risk Aversion," Economics Papers 2002-W3, Economics Group, Nuffield College, University of Oxford.
  2. Donald J. Brown & Caterina Calsamiglia, 2005. "The Nonparametric Approach to Applied Welfare Analysis," Cowles Foundation Discussion Papers 1507, Cowles Foundation for Research in Economics, Yale University.
  3. Matzkin, Rosa L, 1991. "Axioms of Revealed Preference for Nonlinear Choice Sets," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1779-86, November.
  4. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers, Stanford - Institute for Thoretical Economics 11, Stanford - Institute for Thoretical Economics.
  5. Lewbel, Arthur, 1996. "Aggregation without Separability: A Generalized Composite Commodity Theorem," American Economic Review, American Economic Association, vol. 86(3), pages 524-43, June.
  6. Chambers, Christopher P. & Echenique, Federico, 2009. "Supermodularity and preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1004-1014, May.
  7. Forges, Françoise & Minelli, Enrico, 2009. "Afriat's theorem for general budget sets," Journal of Economic Theory, Elsevier, vol. 144(1), pages 135-145, January.
  8. Varian, Hal R, 1983. "Non-Parametric Tests of Consumer Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 99-110, January.
  9. John K.-H Quah, 2007. "The Comparative Statics of Constrained Optimization Problems," Econometrica, Econometric Society, Econometric Society, vol. 75(2), pages 401-431, 03.
  10. Epstein, Larry G, 1981. "Generalized Duality and Integrability," Econometrica, Econometric Society, Econometric Society, vol. 49(3), pages 655-78, May.
  11. Mas-Colell, Andreu, 1978. "On Revealed Preference Analysis," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 121-31, February.
  12. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, 9.
  13. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 945-73, July.
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