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Goods Versus Characteristics: Revealed Preference Procedures for Nested Models

  • Matthew Polisson
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    This paper compares the goods and characteristics models of the consumer within a traditional demand framework.� We examine the nonparametric revealed preference conditions for the goods and characteristics models, and we develop a methodology for testing nested models of this class using nonparametric revealed preference techniques.� Of primary interest is to make a comparison on the basis of predictive success, which requires that we develop a method to relate set predictions across models.� This allows us to nonparametrically identify the model which best fits the data, and in doing so, to identify the value added by the characteristics structure in explaining consumer behavior.� We then explore the effects of hypothetical price variation as implied by our findings in order to nonparametrically bound any comparative statics of interest.� We implement these procedures on household panel data from the UK milk market.� The primary result is that the better fit of the characteristics model is entirely attributable to dimension reduction.

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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper531.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 531.

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    Date of creation: 01 Feb 2011
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    Handle: RePEc:oxf:wpaper:531
    Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
    Web page: http://www.economics.ox.ac.uk/
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    1. Timothy K. M. Beatty & Ian A. Crawford, 2011. "How Demanding Is the Revealed Preference Approach to Demand?," American Economic Review, American Economic Association, vol. 101(6), pages 2782-95, October.
    2. Martin Browning & Laura Blow, 2006. "Revealed Preference Analysis of Characteristics Models," Economics Series Working Papers 282, University of Oxford, Department of Economics.
    3. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    4. Anna Fostel & Herbert E. Scarf & Michael J. Todd, 2003. "Two New Proofs of Afriat's Theorem," Cowles Foundation Discussion Papers 1415, Cowles Foundation for Research in Economics, Yale University.
    5. Matthew Polisson & John Quah, 2012. "Revealed Preference in a Discrete Consumption Space," Discussion Papers in Economics 12/02, Department of Economics, University of Leicester, revised Feb 2012.
    6. Rachel Griffith & Lars Nesheim, 2010. "Estimating households' willingness to pay," CeMMAP working papers CWP24/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    7. Andrew Leicester & Zo� Oldfield, 2009. "Using Scanner Technology to Collect Expenditure Data," Fiscal Studies, Institute for Fiscal Studies, vol. 30(Special I), pages 309-337, December.
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