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Revealed Preference Analysis of Characteristics Models

  • Laura Blow
  • Martin Browning
  • Ian Crawford

Characteristics models have been found to be useful in many areas of economics. However, their empirical implementation tends to rely heavily on functional form assumptions. In this paper we develop a revealed preference approach to characteristics models. We derive the necessary and sufficient empirical conditions under which data on the market behaviour of heterogeneous, price-taking consumers are non-parametrically consistent with the consumer characteristics model. Where these conditions hold, we show how information may be recovered on individual consumers' marginal valuations of product attributes. In some cases, marginal valuations are point identified, and in other cases, we can only recover bounds. Where the conditions fail, we highlight the role which the introduction of unobserved product attributes can play in rationalizing the data. We implement these ideas using consumer panel data on the Danish milk market. Copyright 2008, Wiley-Blackwell.

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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 75 (2008)
Issue (Month): 2 ()
Pages: 371-389

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Handle: RePEc:oup:restud:v:75:y:2008:i:2:p:371-389
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  1. Richard Blundell & Martin Browning & Ian Crawford, 2002. "Nonparametric Engel Curves and Revealed Preference," CAM Working Papers 2002-04, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  2. Ian Crawford, 2004. "Necessary and sufficient conditions for latent separability," CeMMAP working papers CWP02/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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