Abstract

http://ssrn.com/abstract=1882161
 
 

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Connected Substitutes and Invertibility of Demand


Steven Berry


Yale University - Department of Economics; National Bureau of Economic Research (NBER)

Amit Gandhi


University of Wisconsin - Madison

Philip A. Haile


Yale University - Department of Economics; National Bureau of Economic Research (NBER)

July 2011

NBER Working Paper No. w17193

Abstract:     
We consider the invertibility of a nonparametric nonseparable demand system. Invertibility of demand is important in several contexts, including identification of demand, estimation of demand, testing of revealed preference, and economic theory requiring uniqueness of market clearing prices. We introduce the notion of "connected substitutes" and show that this structure is sufficient for invertibility. The connected substitutes conditions require weak substitution between all goods and sufficient strict substitution to necessitate treating them in a single demand system. These conditions are satisfied in many standard models, have transparent economic interpretation, and allow us to show invertibility without functional form restrictions, smoothness assumptions, or strong domain restrictions.

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Date posted: July 11, 2011  

Suggested Citation

Berry, Steven and Gandhi, Amit and Haile, Philip A., Connected Substitutes and Invertibility of Demand (July 2011). NBER Working Paper No. w17193. Available at SSRN: http://ssrn.com/abstract=1882161

Contact Information

Steven T. Berry (Contact Author)
Yale University - Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8264
United States
203-432-3556 (Phone)
203-432-6323 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Amit Gandhi
University of Wisconsin - Madison ( email )
716 Langdon Street
Madison, WI 53706-1481
United States
Philip A. Haile
Yale University - Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8264
United States
203-432-3568 (Phone)
203-432-6323 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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