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Best nonparametric bounds on demand responses

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Author Info
Richard Blundell () (Institute for Fiscal Studies and University College London)
Martin Browning () (Institute for Fiscal Studies and Nuffield College, Oxford)
Ian Crawford () (Institute for Fiscal Studies and University of Oxford)

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Abstract

This paper uses revealed preference inequalities to provide tight nonparametric bounds on consumer responses to price changes. Price responses are allowed to vary nonparametrically across the income distribution by exploiting microdata on consumer expenditures and incomes over a finite set of discrete relative price changes. This is achieved by combining the theory of revealed preference with the semiparametric estimation of consumer expansion paths (Engel curves). We label these expansion path based bounds as E-bounds. Deviations from revealed preference restrictions aremeasured by preference perturbations which are shown to usefully characterise taste change.

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Publisher Info
Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W05/20.

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Length: 25 pp.
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:ifs:ifsewp:05/20

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Related research
Keywords: Demand responses; relative prices; revealed preference; semiparametric regression; changing tastes;

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Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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References listed on IDEAS
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.:
  1. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July. [Downloadable!] (restricted)
  2. Lewbel, Arthur, 1991. "The Rank of Demand Systems: Theory and Nonparametric Estimation," Econometrica, Econometric Society, vol. 59(3), pages 711-30, May. [Downloadable!] (restricted)
  3. Herman Bierens & Hettie Pott-Buter, 1990. "Specification of household engel curves by nonparametric regression," Econometric Reviews, Taylor and Francis Journals, vol. 9(2), pages 123-184. [Downloadable!] (restricted)
  4. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June. [Downloadable!] (restricted)
  5. Richard Blundell & James Powell, 2001. "Endogeneity in nonparametric and semiparametric regression models," CeMMAP working papers CWP09/01, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  6. Richard W. Blundell & Martin Browning & Ian A. Crawford, 2003. "Nonparametric Engel Curves and Revealed Preference," Econometrica, Econometric Society, vol. 71(1), pages 205-240, January. [Downloadable!] (restricted)
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  7. Afriat, S N, 1973. "On a System of Inequalities in Demand Analysis: An Extension of the Classical Method," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 460-72, June. [Downloadable!] (restricted)
  8. Varian, Hal R, 1983. "Non-Parametric Tests of Consumer Behaviour," Review of Economic Studies, Blackwell Publishing, vol. 50(1), pages 99-110, January. [Downloadable!] (restricted)
  9. Arthur Lewbel, 2001. "Demand Systems with and without Errors," American Economic Review, American Economic Association, vol. 91(3), pages 611-618, June. [Downloadable!] (restricted)
  10. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June. [Downloadable!] (restricted)
  11. Banks, James & Blundell, Richard & Lewbel, Arthur, 1996. "Tax Reform and Welfare Measurement: Do We Need Demand System Estimation?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1227-41, September. [Downloadable!] (restricted)
    Other versions:
  12. Whitney K. Newey & James L. Powell & Francis Vella, 1999. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Econometrica, Econometric Society, vol. 67(3), pages 565-604, May.
  13. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Laurens Cherchye & Bram De Rock & Jeroen Sabbe & Frederic Vermeulen, 2008. "Nonparametric Tests of Collectively Rational Consumption Behavior: an Integer Programming Procedure," ECARES Working Papers 2008_001, Université Libre de Bruxelles, Ecares. [Downloadable!]
    Other versions:
  2. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2008. "Opening the Black-Box of Intrahousehold Decision-Making Theory and Nonparametric Empirical Tests of General Collective Consumption Models," ECARES Working Papers 2008_030, Université Libre de Bruxelles, Ecares. [Downloadable!]
    Other versions:
  3. Cherchye, L. & Rock, B. de & Vermeulen, F.M.P., 2004. "The collective model of household consumption : a nonparametric characterization," Discussion Paper 76, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2008. "The Revealed Preference Approach to Collective Consumption Behavior: Testing, Recovery and Welfare Analysis," ECARES Working Papers 2008_029, Université Libre de Bruxelles, Ecares. [Downloadable!]
    Other versions:
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