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Best Nonparametric Bounds on Demand Responses
Author(s) -
Blundell Richard,
Browning Martin,
Crawford Ian
Publication year - 2008
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta6069
Subject(s) - nonparametric statistics , revealed preference , preference , econometrics , economics , engel curve , preference theory , set (abstract data type) , taste , mathematics , mathematical economics , microeconomics , computer science , price index , programming language , chemistry , food science
This paper uses revealed preference inequalities to provide the tightest possible (best) nonparametric bounds on predicted consumer responses to price changes using consumer‐level data over a finite set of relative price changes. These responses are allowed to vary nonparametrically across the income distribution. This is achieved by combining the theory of revealed preference with the semiparametric estimation of consumer expansion paths (Engel curves). We label these expansion path based bounds on demand responses as E‐bounds . Deviations from revealed preference restrictions are measured by preference perturbations which are shown to usefully characterize taste change and to provide a stochastic environment within which violations of revealed preference inequalities can be assessed.