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Nonparametric Engel Curves and Revealed Preference

  • Richard Blundell

    (University College London)

  • Martin Browning

    (Institute of Economics, University of Copenhagen)

  • Ian Crawford

    (University College London)

This paper applies revealed preference theory to the nonparametric statistical analysis of consumer demand. It exploits the idea that price-taking individual households in the same market face the same relative prices, in order to smooth across the demands of individuals for each common price regime. This is shown to provide a stochastic structure within which to examine the consistency of household level data and revealed preference theory. An application is made to a long time series of repeated cross-sections from the 1974-1993 UK Family Expenditure Surveys. The consistency of this data with revealed preference theory is examined. Where rejections do occur, suitable adjustments to prices for quality or taste changes are explored. For periods of consistency with revealed preference bounds are placed on true cost of living indices.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/1999/9907.pdf/
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 99-07.

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Length: 64 pages
Date of creation: Jul 1998
Date of revision:
Handle: RePEc:kud:kuiedp:9907
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  1. Donald J. Brown & Rosa L. Matzkin, 1998. "Estimation of Nonparametric Functions in Simultaneous Equations Models, with an Application to Consumer Demand," Cowles Foundation Discussion Papers 1175, Cowles Foundation for Research in Economics, Yale University.
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  5. Afriat, S N, 1973. "On a System of Inequalities in Demand Analysis: An Extension of the Classical Method," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 460-72, June.
  6. Arthur Lewbel, 2001. "Demand Systems with and without Errors," American Economic Review, American Economic Association, vol. 91(3), pages 611-618, June.
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  8. Richard Blundell & Alan Duncan & Krishna Pendakur, 1998. "Semiparametric estimation and consumer demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 435-461.
  9. Banks, James & Blundell, Richard & Lewbel, Arthur, 1996. "Tax Reform and Welfare Measurement: Do We Need Demand System Estimation?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1227-41, September.
  10. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-76, November.
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  13. Holly, Alberto, 1982. "A Remark on Hausman's Specification Test," Econometrica, Econometric Society, vol. 50(3), pages 749-59, May.
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  23. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie 9312, Humboldt Universitaet Berlin.
  24. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  25. Famulari, Melissa, 1995. "A Household-Based, Nonparametric Test of Demand Theory," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 372-82, May.
  26. Härdle, W. & Marron, S.J., . "Semiparametric comparison of regression curves," CORE Discussion Papers RP -890, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  27. Richard Blundell & Alan Duncan, 1998. "Kernel Regression in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 62-87.
  28. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
  29. Varian, Hal R, 1983. "Non-Parametric Tests of Consumer Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 99-110, January.
  30. Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
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