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Mutually consistent revealed preference bounds

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  • Abi Adams

    (Institute for Fiscal Studies and University of Oxford)

Abstract

Revealed preference restrictions are increasingly used to bound demand responses and as shape restrictions in nonparametric estimation exercises. However, the restrictions imposed are not su?cient for rationality when predictions are made at more than a single price regime. We highlight the nonlinearities in revealed preference restrictions and the nonconvexities in the set of predictions that arise when making multiple predictions. We develop a mixed integer programming characterisation of the problem that can be used to impose rationality on multiple predictions. The approach is applied to the UK Family Expenditure Survey to recover jointly rational nonparametric estimates of income expansion paths.

Suggested Citation

  • Abi Adams, 2015. "Mutually consistent revealed preference bounds," IFS Working Papers W15/20, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:15/20
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    References listed on IDEAS

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    1. Richard BLUNDELL & Martin BROWNING & Laurens CHERCHYE & Ian CRAWFORD & Bram DE ROCK & Frederic VERMEULEN, 2012. "Sharp for SARP: nonparametric bounds on the behavioural and welfare effects of price changes," Working Papers of Department of Economics, Leuven ces12.11, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    2. Cherchye, Laurens & De Rock, Bram & Sabbe, Jeroen & Vermeulen, Frederic, 2008. "Nonparametric tests of collectively rational consumption behavior: An integer programming procedure," Journal of Econometrics, Elsevier, vol. 147(2), pages 258-265, December.
    3. Federico Echenique & Sangmok Lee & Matthew Shum, 2011. "The Money Pump as a Measure of Revealed Preference Violations," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1201-1223.
    4. 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.
    5. Jose Apesteguia & Miguel A. Ballester, 2015. "A Measure of Rationality and Welfare," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1278-1310.
    6. Charles F. Manski, 2014. "Identification of income–leisure preferences and evaluation of income tax policy," Quantitative Economics, Econometric Society, vol. 5, pages 145-174, March.
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    Cited by:

    1. Yuichi Kitamura & Jörg Stoye, 2018. "Nonparametric Analysis of Random Utility Models," Econometrica, Econometric Society, vol. 86(6), pages 1883-1909, November.
    2. Laurens Cherchye & Sam Cosaert & Thomas Demuynck & Bram De Rock, 2020. "Group Consumption with Caring Individuals," Economic Journal, Royal Economic Society, vol. 130(627), pages 587-622.
    3. Rahul Deb & Yuichi Kitamura & John Quah & Joerg Stoye, 2017. "Revealed Price Preference: Theory and Stochastic Testing," Working Papers tecipa-582, University of Toronto, Department of Economics.
    4. Yuichi Kitamura & Jorg Stoye, 2019. "Nonparametric Counterfactuals in Random Utility Models," Papers 1902.08350, arXiv.org, revised May 2019.
    5. Francesca Molinari, 2020. "Microeconometrics with Partial Identification," Papers 2004.11751, arXiv.org.
    6. Rahul Deb & Yuichi Kitamura & John Quah & Jorg Stoye, 2018. "Revealed price preference: theory and empirical analysis," CeMMAP working papers CWP57/18, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    7. Roy Allen & John Rehbeck, 2020. "Counterfactual and Welfare Analysis with an Approximate Model," Papers 2009.03379, arXiv.org.

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