Complementarity and Substitutability: A Dual Approach Based on Luenberger's Benefit Function
AbstractThis paper presents another definition of substitutes and complements. It follows a dual approach using the Luenberger's benefit function. The benefit function measures the amount of a reference bundle that an individual would be willing to give up to move from a given utility level to any bundle. Therefore the benefit function associates to any bundle of goods another bundle that lies on a given indifference curve. This enables one to derive an inverse demand function which is defined as the support price of this associated bundle. The classification of goods between complements and substitutes is then obtained by the comparative static properties of the support price. We present some examples which show that the proposed classification is different from the one obtained with another dual approach based on Deaton's distance function.
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Date of creation: 01 Dec 2008
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Benefit Function; Complement; Substitute;
Other versions of this item:
- Jean-Michel Courtault & Bertrand Crettez & Naïla Hayek, 2008. "Complementarity and Substitutability: A Dual Approach Based on Luenberger's Benefit Function," CEPN Working Papers halshs-00447417, HAL.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Keith R. McLaren & K. K. Gary Wong, 2008.
"The Benefit Function Approach to Modeling Price-Dependent Demand Systems: An Application of Duality Theory,"
Monash Econometrics and Business Statistics Working Papers
8/08, Monash University, Department of Econometrics and Business Statistics.
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- repec:ebl:ecbull:v:4:y:2004:i:5:p:1-6 is not listed on IDEAS
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- Raphaël Giraud, 2012. "Money matters: an axiomatic theory of the endowment effect," Economic Theory, Springer, vol. 50(2), pages 303-339, June.
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