The Econometrics of Nonlinear Budget Sets

Sören Blomquist, Jerry A. Hausman and Whitney K. Newey ()
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Jerry A. Hausman: Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA
Whitney K. Newey: Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA

Annual Review of Economics, 2023, vol. 15, issue 1, 287-306

Abstract: This article surveys the development of nonparametric models and methods for estimation of choice models with nonlinear budget sets. The discussion focuses on the budget set regression, that is, the conditional expectation of a choice variable given the budget set. Utility maximization in a nonparametric model with general heterogeneity reduces the curse of dimensionality in this regression. Empirical results using this regression are different from maximum likelihood and give informative inference. The article also considers the information provided by kink probabilities for nonparametric utility with general heterogeneity. Instrumental variable estimation and the evidence it provides of heterogeneity in preferences are also discussed.

Keywords: random utility model; budget set regression; bunching; instrumental variables (search for similar items in EconPapers)
JEL-codes: C14 C24 H31 J22 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1146/annurev-economics-082222-065323

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