arXiv 28 Feb 2019 · Econometrics · publishedEconometrica (2021)
arXiv:1902.11012 · PDF · DOI · OpenAlex · Extracted main text
An important goal of empirical demand analysis is choice and welfare prediction on counterfactual budget sets arising from potential policy-interventions. Such predictions are more credible when made without arbitrary functional-form/distributional assumptions, and instead based solely on economic rationality, i.e. that choice is consistent with utility maximization by a heterogeneous population. This paper investigates nonparametric economic rationality in the empirically important context of binary choice. We show that under general unobserved heterogeneity, economic rationality is equivalent to a pair of Slutsky-like shape-restrictions on choice-probability functions. The forms of these restrictions differ from Slutsky-inequalities for continuous goods. Unlike McFadden-Richter's stochastic revealed preference, our shape-restrictions (a) are global, i.e. their forms do not depend on which and how many budget-sets are observed, (b) are closed-form, hence easy to impose on parametric/semi/non-parametric models in practical applications, and (c) provide computationally simple, theory-consistent bounds on demand and welfare predictions on counterfactual budget-sets.
appendix boundary found by none_found · 100% of the source is main text. Read the extracted text to check this.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | Estimating Welfare Effects in a Nonparametric Choice Model: The Case of School Vouchers | 0.644 | 2 | 2 |
| 2 | A Projection Framework for Testing Shape Restrictions That Form Convex Cones | 0.405 | 1 | 1 |