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Goods Versus Characteristics: Revealed Preference Procedures for Nested Models

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  • Matthew Polisson
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    Abstract

    This paper compares the goods and characteristics models of the consumer within a traditional demand framework.� We examine the nonparametric revealed preference conditions for the goods and characteristics models, and we develop a methodology for testing nested models of this class using nonparametric revealed preference techniques.� Of primary interest is to make a comparison on the basis of predictive success, which requires that we develop a method to relate set predictions across models.� This allows us to nonparametrically identify the model which best fits the data, and in doing so, to identify the value added by the characteristics structure in explaining consumer behavior.� We then explore the effects of hypothetical price variation as implied by our findings in order to nonparametrically bound any comparative statics of interest.� We implement these procedures on household panel data from the UK milk market.� The primary result is that the better fit of the characteristics model is entirely attributable to dimension reduction.

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    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 531.

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    Date of creation: 01 Feb 2011
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    Handle: RePEc:oxf:wpaper:531

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    Keywords: Characteristics; demand; dimension reduction; nested models; revealed preference;

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    1. Matthew Polisson & John K.-H. Quah, 2013. "Revealed Preference in a Discrete Consumption Space," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 28-34, February.
    2. Andrew Leicester & Zo� Oldfield, 2009. "Using Scanner Technology to Collect Expenditure Data," Fiscal Studies, Institute for Fiscal Studies, vol. 30(Special I), pages 309-337, December.
    3. A. Fostel & H. Scarf & M. Todd, 2004. "Two new proofs of Afriat’s theorem," Economic Theory, Springer, vol. 24(1), pages 211-219, 07.
    4. Laura Blow & Martin Browning & Ian Crawford, 2005. "Revealed preference analysis of characteristics models," School of Economics Discussion Papers 0305, School of Economics, University of Surrey.
    5. Rachel Griffith & Lars Nesheim, 2010. "Estimating households' willingness to pay," CeMMAP working papers CWP24/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    6. Timothy K. M. Beatty & Ian A. Crawford, 2011. "How Demanding Is the Revealed Preference Approach to Demand?," American Economic Review, American Economic Association, vol. 101(6), pages 2782-95, October.
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