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Revealed Preference in a Discrete Consumption Space

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  • Matthew Polisson

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  • 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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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/02.

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Date of creation: Jan 2012
Date of revision: Feb 2012
Handle: RePEc:lec:leecon:12/02

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Keywords: Generalized axiom of revealed preference; Afriat's Theorem; discrete demand; utility maximization;

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  1. Donald Brown & Caterina Calsamiglia, 2007. "The Nonparametric Approach to Applied Welfare Analysis," Economic Theory, Springer, vol. 31(1), pages 183-188, April.
  2. Anna Fostel & Herbert E. Scarf & Michael J. Todd, 2003. "Two New Proofs of Afriat's Theorem," Cowles Foundation Discussion Papers 1415, Cowles Foundation for Research in Economics, Yale University.
  3. Francoise Forges & Enrico Minelli, 2006. "Afriat's Theorem for General Budget Sets," Working Papers ubs0609, University of Brescia, Department of Economics.
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Cited by:
  1. Matthew Polisson, 2011. "Goods Versus Characteristics: Dimension Reduction and Revealed Preference," Discussion Papers in Economics 11/44, Department of Economics, University of Leicester, revised Dec 2011.
  2. Francoise Forges & Vincent Iehlé, 2013. "Afriat's Theorem for Indivisible Goods," CESifo Working Paper Series 4498, CESifo Group Munich.

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