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Non-Parametric Bounds for Non-Convex Preferences

Listed author(s):
  • Halevy, Yoram
  • Persitz, Dotan
  • Zrill, Lanny

Choices from linear budget sets are often used to recover consumer's preferences. The classic method uses revealed preference theory to construct non-parametric bounds on the indifference curve that passes through a given bundle. We show that these bounds do not apply to non-convex preferences, and therefore may lead to erroneous prediction and welfare analysis. We suggest an alternative that is based on the assumption of monotonicity of preferences.

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File URL: http://faculty.arts.ubc.ca/yhalevy/Varian_bounds_comment.pdf
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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number yoram_halevy-2015-23.

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Length: 17 pages
Date of creation: 30 Dec 2015
Date of revision: 16 Oct 2016
Handle: RePEc:ubc:pmicro:yoram_halevy-2015-23
Contact details of provider: Web page: http://www.economics.ubc.ca/

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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. A. Fostel & H. Scarf & M. Todd, 2004. "Two new proofs of Afriat’s theorem," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 211-219, 07.
  3. Halevy, Yoram & Zrill, Lanny, 2016. "Parametric Recovery Methods: A Comparative Experimental Study," Microeconomics.ca working papers yoram_halevy-2016-2, Vancouver School of Economics, revised 03 Nov 2016.
  4. Knoblauch, Vicki, 1992. "A Tight Upper Bound on the Money Metric Utility Function," American Economic Review, American Economic Association, vol. 82(3), pages 660-663, June.
  5. W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 419-425.
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