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Sharp for SARP: Nonparametric bounds on the behavioural and welfare effects of price changes

Author

Listed:
  • Richard Blundell

    (Institute for Fiscal Studies and University College London)

  • Martin Browning

    (Institute for Fiscal Studies and University of Oxford)

  • Laurens Cherchye

    (Institute for Fiscal Studies and Katholieke Universiteit Leuven)

  • Ian Crawford

    (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Bram De Rock

    (Institute for Fiscal Studies and Université libre de Bruxelles)

  • Frederic Vermeulen

    (Institute for Fiscal Studies and University of Leuven)

Abstract

Sharp nonparametric bounds are derived for Hicksian compensating and equivalent variations. These 'i-bounds' generalize earlier results of Blundell, Browning and Crawford (2008). We show that their e-bounds are sharp under the Weak Axiom of Revealed Preference (WARP). They do not require transitivity. The new i-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, 2012. "Sharp for SARP: Nonparametric bounds on the behavioural and welfare effects of price changes," IFS Working Papers W12/14, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:12/14
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    Citations

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    Cited by:

    1. Yuichi Kitamura & Jorg Stoye, 2013. "Nonparametric Analysis of Random Utility Models: Testing," Cowles Foundation Discussion Papers 1902, Cowles Foundation for Research in Economics, Yale University.
    2. 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.
    3. Chambers, Christopher P. & Echenique, Federico, 2025. "Empirical welfare economics," Theoretical Economics, Econometric Society, vol. 20(3), July.
    4. Abi Adams, 2015. "Mutually consistent revealed preference bounds," IFS Working Papers W15/20, Institute for Fiscal Studies.
    5. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2018. "Transitivity of preferences: when does it matter?," Theoretical Economics, Econometric Society, vol. 13(3), September.
    6. Sam Cosaert & Thomas Demuynck, 2018. "Nonparametric Welfare and Demand Analysis with Unobserved Individual Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 349-361, May.
    7. Daniel L. McFadden, 2013. "The New Science of Pleasure," NBER Working Papers 18687, National Bureau of Economic Research, Inc.
    8. 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.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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