Best Nonparametric Bounds on Demand Responses
Richard Blundell, Martin Browning, Ian Crawford
Econometrica · 2008 · Volume 76 · Issue 6
Abstract
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 asE-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.
Keywords
Demand responses, bounds, revealed preference, partial identification, set identification, inequality restrictions, relative prices, semiparametric regression, changing tastes
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