Revealed Preference Analysis with Normal Goods: Application to Cost-of-Living Indices

B-Tier
Journal: American Economic Journal: Microeconomics
Year: 2020
Volume: 12
Issue: 3
Pages: 165-88

Authors (4)

Laurens Cherchye (not in RePEc) Thomas Demuynck (not in RePEc) Bram De Rock (not in RePEc) Khushboo Surana (University of York)

Score contribution per author:

0.503 = (α=2.01 / 4 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We present a revealed preference methodology for nonparametric demand analysis under the assumption of normal goods. Our methodology is flexible in that it allows for imposing normality on any subset of goods. We show the usefulness of our methodology for empirical welfare analysis through cost-of-living indices. An illustration to US consumption data drawn from the Panel Study of Income Dynamics (PSID) demonstrates that mild normality assumptions can substantially strengthen the empirical analysis. It obtains considerably tighter bounds on cost-of-living indices and a significantly more informative classification of better-off and worse-off individuals after the 2008 financial crisis.

Technical Details

RePEc Handle
repec:aea:aejmic:v:12:y:2020:i:3:p:165-88
Journal Field
General
Author Count
4
Added to Database
2026-01-25