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Sharp for SARP: Nonparametric bounds on counterfactual demands

Author

Listed:
  • Richard Blundell
  • Martin Browning
  • Laurens Cherchye
  • Ian Crawford
  • Bram De Rock
  • Frederic Vermeulen

Abstract

Sharp nonparametric bounds are derived for counterfactual demands and Hicksian compensating and equivalent variations. These "i-bounds" refine and extend earlier results of Blundell, Browning, and Crawford (2008). We show that their bounds are sharp underthe Weak Axiom of Revealed Preference (WARP) since they do not require transitivity. The new bounds are sharp under the Strong Axiom of Revealed Preference (SARP). By requiring transitivity they can be used to bound welfare measures. The new bounds on welfare measures are shown to be operationalized through algorithms that are easy to implement.

Suggested Citation

  • Richard Blundell & Martin Browning & Laurens Cherchye & Ian Crawford & Bram De Rock & Frederic Vermeulen, 2015. "Sharp for SARP: Nonparametric bounds on counterfactual demands," ULB Institutional Repository 2013/237105, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/237105
    Note: SCOPUS: ar.j
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    Cited by:

    1. Takashi Kunimoto & Roberto Serrano, 2020. "Rationalizable Incentives: Interim Implementation of Sets in Rationalizable Strategies," Economics and Statistics Working Papers 4-2020, Singapore Management University, School of Economics.
    2. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Frederic Vermeulen, 2017. "Household Consumption When the Marriage Is Stable," American Economic Review, American Economic Association, vol. 107(6), pages 1507-1534, June.
    3. Heufer, Jan & Hjertstrand, Per, 2019. "Homothetic preferences revealed," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 602-614.
    4. Yuichi Kitamura & Jörg Stoye, 2018. "Nonparametric Analysis of Random Utility Models," Econometrica, Econometric Society, vol. 86(6), pages 1883-1909, November.
    5. Adams-Prassl, Abigail, 2019. "Mutually Consistent Revealed Preference Demand Predictions," CEPR Discussion Papers 13580, C.E.P.R. Discussion Papers.
    6. Alvaro Sandroni & Leo Katz, 2024. "The leveling axiom," Theory and Decision, Springer, vol. 96(1), pages 135-152, February.
    7. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2018. "Transitivity of preferences: when does it matter?," Theoretical Economics, Econometric Society, vol. 13(3), September.
    8. De Rock, Bram & Cherchye, Laurens & Chiappori, Pierre-André & Ringdal, Charlotte & Vermeulen, Frederic, 2021. "Feed the children," CEPR Discussion Papers 16482, C.E.P.R. Discussion Papers.
    9. Abi Adams & Richard Blundell & Martin Browning & Ian Crawford, 2015. "Prices versus preferences: taste change and revealed preference," IFS Working Papers W15/11, Institute for Fiscal Studies.
    10. Richard Blundell & Martin Browning & Laurens Cherchye & Ian Crawford & Bram De Rock & Frederic Vermeulen, 2015. "Sharp for SARP: Nonparametric Bounds on Counterfactual Demands," American Economic Journal: Microeconomics, American Economic Association, vol. 7(1), pages 43-60, February.
    11. Aguiar, Victor H. & Hjertstrand, Per & Serrano, Roberto, 2020. "A Rationalization of the Weak Axiom of Revealed Preference," Working Paper Series 1321, Research Institute of Industrial Economics.
    12. Jan (J.P.M.) Heufer & Per Hjertstrand, 2017. "Homothetic Preferences Revealed," Tinbergen Institute Discussion Papers 17-103/I, Tinbergen Institute.
    13. Stefan Hoderlein & Jörg Stoye, 2015. "Testing stochastic rationality and predicting stochastic demand: the case of two goods," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 313-328, October.
    14. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Khushboo Surana, 2020. "Revealed Preference Analysis with Normal Goods: Application to Cost-of-Living Indices," American Economic Journal: Microeconomics, American Economic Association, vol. 12(3), pages 165-188, August.
    15. Wilfried Youmbi, 2024. "Nonparametric Analysis of Random Utility Models Robust to Nontransitive Preferences," Papers 2406.13969, arXiv.org.
    16. Ian Crawford & Matthew Polisson, 2015. "Demand Analysis with Partially Observed Prices," Discussion Papers in Economics 15/12, Division of Economics, School of Business, University of Leicester, revised Dec 2016.
    17. Hubert Wu, 2025. "The Empirical Welfare Content of International Price and Income Comparisons," Papers 2504.16654, arXiv.org, revised Dec 2025.
    18. Cherchye, Laurens & Demuynck, Thomas & Rock, Bram De, 2019. "Bounding counterfactual demand with unobserved heterogeneity and endogenous expenditures," Journal of Econometrics, Elsevier, vol. 211(2), pages 483-506.
    19. Laurens CHERCHYE & Ian CRAWFORD & Bram DE ROCK & Frederic VERMEULEN, 2013. "Gorman revisited: nonparametric conditions for exact linear aggregation," Working Papers of Department of Economics, Leuven ces13.05, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    20. Laurens Cherchye & Ian Crawford & Bram De Rock & Frederic Vermeulen, 2015. "Revealed Preference and Aggregation," Working Papers ECARES ECARES 2015-08, ULB -- Universite Libre de Bruxelles.

    More about this item

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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