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Normality of Demand in a Two-Goods Setting

Listed author(s):
  • Laurens Cherchye
  • Bram De Rock
  • Thomas Demuynck

We study the testable implications of normal demand in a two-goods setting. For a finite dataset on prices and quantities, we present the revealed preference conditions for normality of one or both goods. Our characterization provides an intuitive extension of the well-known Weak Axiom of Revealed Preference, and is easy to use in practice. We illustrate the empirical relevance of our theoretical results through an application to the experimental dataset presented in Andreoni and Miller (2002).

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/235577/3/2016-31-CHERCHYE_DEMUYNCK_DEROCK-normality.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2016-31.

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Length: 22 p.
Date of creation: Sep 2016
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/235577
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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. Chambers, Christopher P. & Echenique, Federico & Shmaya, Eran, 2010. "On behavioral complementarity and its implications," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2332-2355, November.
  3. Christopher P. Chambers & Federico Echenique & Eran Shmaya, 2011. "Testable Implications of Gross Substitutes in Demand for Two Goods," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 129-136, February.
  4. Hugh Rose, 1958. "Consistency of Preference: The Two-Commodity Case," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 124-125.
  5. Bilancini, Ennio & Boncinelli, Leonardo, 2010. "Preferences and normal goods: An easy-to-check necessary and sufficient condition," Economics Letters, Elsevier, vol. 108(1), pages 13-15, July.
  6. James Andreoni & Charles Sprenger, 2012. "Estimating Time Preferences from Convex Budgets," American Economic Review, American Economic Association, vol. 102(7), pages 3333-3356, December.
  7. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram & Hjertstrand, Per, 2015. "Revealed preference tests for weak separability: An integer programming approach," Journal of Econometrics, Elsevier, vol. 186(1), pages 129-141.
  8. Leroux, Alain, 1987. "Preferences and normal goods: A sufficient condition," Journal of Economic Theory, Elsevier, vol. 43(1), pages 192-199, October.
  9. Alarie, Yves & Bronsard, Camille & Ouellette, Pierre, 1990. "Preferences and normal goods: A necessary and sufficient condition," Journal of Economic Theory, Elsevier, vol. 51(2), pages 423-430, August.
  10. Andreu Mas-Colell, 1978. "On Revealed Preference Analysis," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 121-131.
  11. Diewert, W. E. & Parkan, C., 1985. "Tests for the consistency of consumer data," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 127-147.
  12. Richard Blundell & Xiaohong Chen & Dennis Kristensen, 2007. "Semi-Nonparametric IV Estimation of Shape-Invariant Engel Curves," Econometrica, Econometric Society, vol. 75(6), pages 1613-1669, November.
  13. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
  14. Fisher, Franklin M., 1990. "Normal goods and the expenditure function," Journal of Economic Theory, Elsevier, vol. 51(2), pages 431-433, August.
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