Income Effects and Rationalizability in Multinomial Choice Models
17 Pages Posted: 16 Oct 2018
Date Written: August 1, 2018
In multinomial choice settings, Daly-Zachary (1978) and Armstrong-Vickers (2015) provided closed-form conditions, under which choice probability functions can be rationalized via random utility models. A key condition is Slutsky symmetry. We first show that in the multinomial context, Daly-Zachary's Slutsky symmetry is equivalent to absence of income-effects. Next, for general multinomial choice that allows for income-effects, we provide global shape restrictions on choice probability functions, which are shown to be sufficient for rationalizability. Finally, we outline nonparametric identification of preference distributions using these results. The theory of linear partial differential equations plays a key role in our analysis.
Keywords: Multinomial Choice, Unobserved Heterogeneity, random Utility, Rationalizability/Integrability, Slutsky-Symmetry, Income Effects, Partial Differential Equations, Nonparametric Identification
JEL Classification: C14, C25, D11
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