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Revealed preference in a discrete consumption space

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  • Matthew Polisson

    ()
    (Institute for Fiscal Studies and University of Leicester)

  • John Quah

Abstract

We show that an agent maximizing some utility function on a discrete (as opposed to continuous) consumption space will obey the generalized axiom of revealed preference (GARP) so long as the agent obeys cost efficiency. Cost efficiency will hold if there is some good, outside the set of goods being studied by the modeler, that can be consumed by the agent in continuous quantities. An application of Afriat's Theorem then guarantees that there is a strictly increasing utility function on the discrete consumption space that rationalizes price and demand observations in that space.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W12/03.

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Date of creation: Mar 2012
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Handle: RePEc:ifs:ifsewp:12/03

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  1. Herbert E. Scarf & Ana Fostel & Michael J. Todd, 2004. "Two New Proofs of Afriat's Theorem," Yale School of Management Working Papers ysm377, Yale School of Management.
  2. Francoise Forges & Enrico Minelli, 2006. "Afriat’s Theorem for General Budget Sets," CESifo Working Paper Series 1703, CESifo Group Munich.
  3. Donald Brown & Caterina Calsamiglia, 2007. "The Nonparametric Approach to Applied Welfare Analysis," Economic Theory, Springer, vol. 31(1), pages 183-188, April.
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Cited by:
  1. Francoise Forges & Vincent Iehlé, 2014. "Afriat's theorem for indivisible goods," Working Papers halshs-00870052, HAL.
  2. Matthew Polisson, 2012. "Goods versus characteristics: dimension reduction and revealed preference," IFS Working Papers W12/02, Institute for Fiscal Studies.
  3. Matthew Polisson, 2011. "Goods Versus Characteristics: Revealed Preference Procedures for Nested Models," Economics Series Working Papers 531, University of Oxford, Department of Economics.

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