Bounding counterfactual demand with unobserved heterogeneity and endogenous expenditures

Laurens Cherchye, Thomas Demuynck and Bram De Rock

Journal of Econometrics, 2019, vol. 211, issue 2, 483-506

Abstract: We propose a method to predict rational counterfactual demand responses from repeated cross-sections. We derive bounds on the distribution of counterfactual demands that are consistent with the Weak Axiom of Revealed Preferences, without putting any restriction on the preference heterogeneity across consumers. In contrast to existing methods, we also allow for endogeneity of total expenditures. In addition, the method can readily incorporate restrictions on the income elasticities of the consumption goods, which further enhances its identifying power (i.e. tighter bounds). We illustrate our approach through an application to data drawn from the U.S. Consumer Expenditure Survey.

Keywords: Unobserved heterogeneity; WARP; Endogenous expenditures; Counterfactual demand (search for similar items in EconPapers)
JEL-codes: C14 D12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Bounding Counterfactual Demand with Unobserved Heterogeneity and Endogenous Expenditures (2017)
Working Paper: Bounding counterfactual demand with unobserved heterogeneity and endogenous expenditures (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:211:y:2019:i:2:p:483-506

DOI: 10.1016/j.jeconom.2019.03.002

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