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Best Nonparametric Bounds on Demand Responses

Author

Listed:
  • Richard Blundell

    (University College London)

  • Martin Browning

    (Department of Economics, University of Copenhagen)

  • Ian Crawford

    (University of Surrey)

Abstract

This paper uses revealed preference inequalities to provide tight nonparametric bounds on consumer responses to price changes. Price responses are allowed to vary nonparametrically across the income distribution by exploiting micro data on consumer expenditures and incomes over a finite set of discrete relative price changes. This is achieved by combining the theory of revealed preference with the semiparametric estimation of consumer expansion paths (Engel curves). We label these expansion path based bounds as E-bounds. Deviations from revealed preference restrictions are measured by preference perturbations which are shown to usefully characterise taste change.

Suggested Citation

  • Richard Blundell & Martin Browning & Ian Crawford, 2005. "Best Nonparametric Bounds on Demand Responses," CAM Working Papers 2005-16, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    • Handle: RePEc:kud:kuieca:2005_16
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    File URL: http://www.econ.ku.dk/cam/wp0910/wp0406/2005-16.pdf/
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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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