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The identification of preferences from equilibrium prices


  • CHIAPPORI, Pierre-André
  • EKELAND, Ivar
  • KUBLER, Félix


The fundamentals of an exchange economy, the preferences of individuals, can be identified from the competitive equilibrium correspondence, which associates equilibrium prices of commodities to allocations of endowments; the argument extends to production economies. The essential step is the identification of fundamentals from aggregate demand as a function of the prices of commodities and the distribution of income. The graph of the equilibrium correspondence or of the aggregate demand function satisfy non - trivial restrictions. The identification of fundamentals allows for the prediction of the response of individuals and the economy to changes in the organization of production and exchange, while restrictions on the equilibrium correspondence or the aggregate demand function imply that general equilibrium theory has testable implications.

Suggested Citation

  • CHIAPPORI, Pierre-André & EKELAND, Ivar & KUBLER, Félix & POLEMARCHAKIS, Heracles, 2000. "The identification of preferences from equilibrium prices," CORE Discussion Papers 2000024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2000024

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    References listed on IDEAS

    1. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
    2. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
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    4. Debreu, Gerard, 1972. "Smooth Preferences," Econometrica, Econometric Society, vol. 40(4), pages 603-615, July.
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    6. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
    7. Grandmont, Jean-Michel, 1992. "Transformations of the commodity space, behavioral heterogeneity, and the aggregation problem," Journal of Economic Theory, Elsevier, vol. 57(1), pages 1-35.
    8. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
    9. Brown, Donald J & Matzkin, Rosa L, 1996. "Testable Restrictions on the Equilibrium Manifold," Econometrica, Econometric Society, vol. 64(6), pages 1249-1262, November.
    10. Sonnenschein, Hugo, 1973. "Do Walras' identity and continuity characterize the class of community excess demand functions?," Journal of Economic Theory, Elsevier, vol. 6(4), pages 345-354, August.
    11. Lewbel, Arthur, 1991. "The Rank of Demand Systems: Theory and Nonparametric Estimation," Econometrica, Econometric Society, vol. 59(3), pages 711-730, May.
    12. Shafer, Wayne & Sonnenschein, Hugo, 1993. "Market demand and excess demand functions," Handbook of Mathematical Economics,in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 14, pages 671-693 Elsevier.
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    Cited by:

    1. Geanakoplos, John & Polemarchakis, H.M., 2008. "Pareto improving taxes," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 682-696, July.
    2. Andrés Carvajal & Alvaro Riascos, 2004. "Global identification from the equilibrium manifold under incomplete markets," Royal Holloway, University of London: Discussion Papers in Economics 04/30, Department of Economics, Royal Holloway University of London, revised Nov 2004.
    3. Carvajal, Andres, 2004. "Testable restrictions on the equilibrium manifold under random preferences," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 121-143, February.
    4. Carvajal, Andres & Ray, Indrajit & Snyder, Susan, 2004. "Equilibrium behavior in markets and games: testable restrictions and identification," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 1-40, February.
    5. Ekeland, Ivar & Guesnerie, Roger, 2010. "The geometry of global production and factor price equalisation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 666-690, September.
    6. Kubler, Felix, 2003. "Observable restrictions of general equilibrium models with financial markets," Journal of Economic Theory, Elsevier, vol. 110(1), pages 137-153, May.

    More about this item


    aggregation; equilibrium; identification; testability.;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General


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