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Revealed Price Preference: Theory and Empirical Analysis

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  • Rahul Deb
  • Yuichi Kitamura
  • John K. -H. Quah
  • Jorg Stoye

Abstract

With the aim of determining the welfare implications of price change in consumption data, we introduce a revealed preference relation over prices. We show that an absence of cycles in this preference relation characterizes a model of demand where consumers trade-off the utility of consumption against the disutility of expenditure. This model is appropriate whenever a consumer's demand over a {\em strict} subset of all available goods is being analyzed. For the random utility extension of the model, we devise nonparametric statistical procedures for testing and welfare comparisons. The latter requires the development of novel tests of linear hypotheses for partially identified parameters. In doing so, we provide new algorithms for the calculation and statistical inference in nonparametric counterfactual analysis for a general partially identified model. Our applications on national household expenditure data provide support for the model and yield informative bounds concerning welfare rankings across different prices.

Suggested Citation

  • Rahul Deb & Yuichi Kitamura & John K. -H. Quah & Jorg Stoye, 2018. "Revealed Price Preference: Theory and Empirical Analysis," Papers 1801.02702, arXiv.org, revised Sep 2018.
  • Handle: RePEc:arx:papers:1801.02702
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    References listed on IDEAS

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    1. Forges, Françoise & Minelli, Enrico, 2009. "Afriat's theorem for general budget sets," Journal of Economic Theory, Elsevier, vol. 144(1), pages 135-145, January.
    2. Stefan Hoderlein & Jörg Stoye, 2014. "Revealed Preferences in a Heterogeneous Population," The Review of Economics and Statistics, MIT Press, vol. 96(2), pages 197-213, May.
    3. Yuichi Kitamura & Jörg Stoye, 2018. "Nonparametric Analysis of Random Utility Models," Econometrica, Econometric Society, vol. 86(6), pages 1883-1909, November.
    4. 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.
    5. Abi Adams, 2015. "Mutually consistent revealed preference bounds," IFS Working Papers W15/20, Institute for Fiscal Studies.
    6. Victor H. Aguiar & Nail Kashaev, 2018. "Stochastic Revealed Preferences with Measurement Error," Papers 1810.05287, arXiv.org, revised Sep 2020.
    7. Kawaguchi, Kohei, 2017. "Testing rationality without restricting heterogeneity," Journal of Econometrics, Elsevier, vol. 197(1), pages 153-171.
    8. John Quah, 2014. "A test for weakly separable preferences," Economics Series Working Papers 708, University of Oxford, Department of Economics.
    9. repec:dau:papers:123456789/4099 is not listed on IDEAS
    10. Ozaki, Hiroyuki & Streufert, Peter A., 1996. "Dynamic programming for non-additive stochastic objectives," Journal of Mathematical Economics, Elsevier, vol. 25(4), pages 391-442.
    11. Sakai, Yasuhiro, 1977. "Revealed favorability, indirect utility, and direct utility," Journal of Economic Theory, Elsevier, vol. 14(1), pages 113-129, February.
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    Cited by:

    1. Natalia Lazzati & John K.-H. Quah & Koji Shirai, 2018. "Nonparametric analysis of monotone choice," Discussion Paper Series 184, School of Economics, Kwansei Gakuin University.
    2. Stoye, Jörg, 2019. "Revealed Stochastic Preference: A one-paragraph proof and generalization," Economics Letters, Elsevier, vol. 177(C), pages 66-68.
    3. Roy Allen & John Rehbeck, 2020. "Counterfactual and Welfare Analysis with an Approximate Model," Papers 2009.03379, arXiv.org.

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