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Afriat's Theorem for General Budget Sets

  • Francoise Forges
  • Enrico Minelli

Afriat (1967) showed the equivalence of the strong axiom of revealed preference and the existence of a solution to a set of linear inequalities. From this solution he constructed a utility function rationalizing the choices of a competitive consumer. We extend Afriat’s theorem to a class of nonlinear budget sets. We thereby obtain testable implications of rational behavior for a wide class of economic environments, and a constructive method to derive individual preferences from observed choices. In an application to market games, we identify a set of observable restrictions characterizing Nash equilibrium outcomes.

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Paper provided by University of Brescia, Department of Economics in its series Working Papers with number ubs0609.

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Date of creation: 2006
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Handle: RePEc:ubs:wpaper:ubs0609
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  1. W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 419-425.
  2. 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.
  3. Jean-Paul Chavas & Thomas L. Cox, 1993. "On Generalized Revealed Preference Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 493-506.
  4. Mas-Colell, Andreu, 1977. "The Recoverability of Consumers' Preferences from Market Demand Behavior," Econometrica, Econometric Society, vol. 45(6), pages 1409-30, September.
  5. Andreu Mas-Colell, 1978. "On Revealed Preference Analysis," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 121-131.
  6. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  7. Matzkin, Rosa L, 1991. "Axioms of Revealed Preference for Nonlinear Choice Sets," Econometrica, Econometric Society, vol. 59(6), pages 1779-86, November.
  8. Dubey, Pradeep & Sahi, Siddhartha, 2003. "Price-mediated trade with quantity signals: an axiomatic approach," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 377-389, July.
  9. Sprumont, Yves, 2000. "On the Testable Implications of Collective Choice Theories," Journal of Economic Theory, Elsevier, vol. 93(2), pages 205-232, August.
  10. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
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