 The Empirical Content of Binary Choice ModelsEconometrica, 2021, vol. 89, issue 1, 457-474 Abstract: An important goal of empirical demand analysis is choice and welfare prediction on counterfactual budget sets arising from potential policy interventions. Such predictions are more credible when made without arbitrary functional‐form/distributional assumptions, and instead based solely on economic rationality, that is, that choice is consistent with utility maximization by a heterogeneous population. This paper investigates nonparametric economic rationality in the empirically important context of binary choice. We show that under general unobserved heterogeneity, economic rationality is equivalent to a pair of Slutsky‐like shape restrictions on choice‐probability functions. The forms of these restrictions differ from Slutsky inequalities for continuous goods. Unlike McFadden–Richter's stochastic revealed preference, our shape restrictions (a) are global, that is, their forms do not depend on which and how many budget sets are observed, (b) are closed form, hence easy to impose on parametric/semi/nonparametric models in practical applications, and (c) provide computationally simple, theory‐consistent bounds on demand and welfare predictions on counterfactual budge sets. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:89:y:2021:i:1:p:457-474 Ordering information: This journal article can be ordered from Access Statistics for this article Econometrica is currently edited by Guido W. Imbens More articles in Econometrica from Econometric Society Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.