A theory of the perturbed consumer with general budgets
AbstractWe consider demand systems for utility-maximizing consumers facing general budget constraints whose utilities are perturbed by additive linear shifts in marginal utilities. Budgets are required to be compact but are not required to be convex. We define demand generating functions (DGF) whose subgradients with respect to these perturbations are convex hulls of the utility-maximizing demands. We give necessary as well as sufficient conditions for DGF to be consistent with utility maximization, and establish under quite general conditions that utility-maximizing demands are almost everywhere single-valued and smooth in their arguments. We also give sufficient conditions for integrability of perturbed demand. Our analysis provides a foundation for applications of consumer theory to problems with nonlinear budget constraints.
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Date of creation: Mar 2012
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Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-10 (All new papers)
- NEP-MIC-2012-04-10 (Microeconomics)
- NEP-UPT-2012-04-10 (Utility Models & Prospect Theory)
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