Sharp for SARP: Nonparametric Bounds on the Behavioural and Welfare Effects of Price Changes

CentER Discussion Paper Series No. 2012-065

12 Pages Posted: 28 Aug 2012

See all articles by Richard W. Blundell

Richard W. Blundell

UCL; IFS; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Martin Browning

University of Oxford

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Ian Crawford

University of Oxford

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Frederic Vermeulen

Tilburg University - CentER; IZA Institute of Labor Economics

Date Written: August 27, 2012

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.

Keywords: consumer demand, revealed preference, set identification, bounds

JEL Classification: D11, D12, C14

Suggested Citation

Blundell, Richard W. and Browning, Martin and Cherchye, Laurens and Crawford, Ian and De Rock, Bram and Vermeulen, Frederic, Sharp for SARP: Nonparametric Bounds on the Behavioural and Welfare Effects of Price Changes (August 27, 2012). CentER Discussion Paper Series No. 2012-065, Available at SSRN: https://ssrn.com/abstract=2136861 or http://dx.doi.org/10.2139/ssrn.2136861

Richard W. Blundell (Contact Author)

UCL ( email )

Department of Economics
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+44 20 7916 2773 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctp39a/

IFS

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IZA Institute of Labor Economics

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Centre for Economic Policy Research (CEPR)

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Martin Browning

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Laurens Cherchye

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Ian Crawford

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt, 50
CP 114
Brussels, B-1050
Belgium

Frederic Vermeulen

Tilburg University - CentER ( email )

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5000 LE Tilburg
Netherlands
+31 13 466 3196 (Phone)

HOME PAGE: http://center.uvt.nl/staff/vermeulen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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