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On Revealed Preference and Indivisibilities

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  • Satoru Fujishige
  • Zaifu Yang
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    Abstract

    We consider a market model in which all commodities are inherently indivisible and thus are traded in integer quantities. We ask whether a finite set of price-quantity observations satisfying the Generalized Axiom of Revealed Preference (GARP) is consistent with utility maximization. Although familiar conditions such as non-satiation become meaningless in the current discrete model, by refining the standard notion of demand set we show that Afriat's celebrated theorem still holds true. Exploring network structure and a new and easy-to-use variant of GARP, we propose an elementary, simple, intuitive, combinatorial, and constructive proof for the result.

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    Bibliographic Info

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

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    Date of creation: Jan 2012
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    Handle: RePEc:yor:yorken:12/02

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    Keywords: Afriat's theorem; GARP; indivisibilities; revealed preference.;

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    1. A. Fostel & H. Scarf & M. Todd, 2004. "Two new proofs of Afriat’s theorem," Economic Theory, Springer, vol. 24(1), pages 211-219, 07.
    2. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2007. "The Collective Model of Household Consumption: A nonparametric characterization," ULB Institutional Repository 2013/98559, ULB -- Universite Libre de Bruxelles.
    3. Frederic Vermeulen, 2012. "Foundations of Revealed Preference: Introduction," Economic Journal, Royal Economic Society, vol. 122(560), pages 287-294, 05.
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    Cited by:
    1. Francoise Forges & Vincent Iehlé, 2013. "Afriat's Theorem for Indivisible Goods," CESifo Working Paper Series 4498, CESifo Group Munich.

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