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Non-parametric bounds for non-convex preferences

Listed author(s):
  • Halevy, Yoram
  • Persitz, Dotan
  • Zrill, Lanny

Choices from linear budget sets are often used to recover consumer's preferences. The classic method uses revealed preference theory to construct non-parametric bounds on the indifference curve that passes through a given bundle. We show that these bounds do not apply to non-convex preferences, and therefore may lead to erroneous predictions and welfare analysis. We suggest an alternative that is based solely on the assumption of monotonicity of preferences.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167268117300392
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 137 (2017)
Issue (Month): C ()
Pages: 105-112

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Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:105-112
DOI: 10.1016/j.jebo.2017.02.006
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
  2. A. Fostel & H. Scarf & M. Todd, 2004. "Two new proofs of Afriat’s theorem," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 211-219, 07.
  3. Korenok, Oleg & Millner, Edward L. & Razzolini, Laura, 2013. "Impure altruism in dictators' giving," Journal of Public Economics, Elsevier, vol. 97(C), pages 1-8.
  4. Forges, Françoise & Minelli, Enrico, 2009. "Afriat's theorem for general budget sets," Journal of Economic Theory, Elsevier, vol. 144(1), pages 135-145, January.
  5. Heufer, Jan, 2012. "Revealed Preference and Nonparametric Analysis – Continuous Extensions and Recoverability," Ruhr Economic Papers 324, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  6. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-686, May.
  7. Halevy, Yoram & Zrill, Lanny, 2016. "Parametric Recovery Methods: A Comparative Experimental Study," Microeconomics.ca working papers yoram_halevy-2016-2, Vancouver School of Economics, revised 03 Nov 2016.
  8. Knoblauch, Vicki, 1992. "A Tight Upper Bound on the Money Metric Utility Function," American Economic Review, American Economic Association, vol. 82(3), pages 660-663, June.
  9. Teo Chung Piaw & Rakesh V. Vohra, 2003. "Afrait's Theorem and Negative Cycles," Discussion Papers 1377, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 419-425.
  11. repec:dau:papers:123456789/4099 is not listed on IDEAS
  12. repec:zbw:rwirep:0324 is not listed on IDEAS
  13. Francoise Forges & Enrico Minelli, 2009. "Afriat's theorem for generalized budget sets," Post-Print hal-00360726, HAL.
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