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On Behavioral Complementarity and its Implications

Author

Listed:
  • Christopher P. Chambers

    () (Division of the Humanities and Social Sciences, California Institute of Technology)

  • Federico Echenique

    () (Division of the Humanities and Social Sciences, California Institute of Technology)

  • Eran Shmaya

    () (Division of the Humanities and Social Sciences, California Institute of Technology)

Abstract

We study the behavioral definition of complementary goods: if the price of one good increases, demand for a complementary good must decrease. We obtain its full implications for observable demand behavior (its testable implications), and for the consumer's underlying preferences. We characterize those data sets which can be generated by rational preferences exhibiting complementarities. In a model in which income results from selling an endowment (as in general equilibrium models of exchange economies), the notion is surprisingly strong and is essentially equivalent to Leontief preferences. In the model of nominal income, the notion describes a class of preferences whose extreme cases are Leontief and Cobb-Douglas respectively.

Suggested Citation

  • Christopher P. Chambers & Federico Echenique & Eran Shmaya, 2007. "On Behavioral Complementarity and its Implications," Documentos de Trabajo (working papers) 1007, Department of Economics - dECON.
  • Handle: RePEc:ude:wpaper:1007
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Jean-Pierre H. Dubé, 2018. "Microeconometric Models of Consumer Demand," NBER Working Papers 25215, National Bureau of Economic Research, Inc.
    2. Paola Manzini & Marco Mariotti & Levent Ülkü, 2019. "Stochastic Complementarity," Economic Journal, Royal Economic Society, vol. 129(619), pages 1343-1363.
    3. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2018. "Normality of demand in a two-goods setting," Journal of Economic Theory, Elsevier, vol. 173(C), pages 361-382.
    4. Demuynck, Thomas & Hjertstrand, Per, 2019. "Samuelson's Approach to Revealed Preference Theory: Some Recent Advances," Working Paper Series 1274, Research Institute of Industrial Economics.
    5. Iaria, Alessandro & WANG, Ao, 2020. "Inferring Complementarity from Correlations rather than Structural Estimation," CEPR Discussion Papers 14273, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Afriat's Theorem; Weak Axiom of Revealed Preference; Complementary goods.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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