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Nonparametric methods for the characteristic model

Blow, L.; Browning, M.; Crawford, I.; (2004) Nonparametric methods for the characteristic model. (cemmap Working Papers CWP18/). Institute for Fiscal Studies: London, UK. Green open access

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Characteristics models have been found to be useful in many areas of economics. However, their empirical implementation tends to rely heavily on functional form assumptions. In this paper we develop a revealed preference-based nonparametric approach to characteristics models. We derive the minimal necessary and sufficient empirical conditions under which data on the market behaviour of individual, heterogeneous, pricetaking consumers are nonparametrically consistent with the consumer characteristics model. Where these conditions hold, we show how information may be recovered on individual consumer’s marginal valuations of product attributes. In some cases marginal valuations are point identified and in other cases we can only recover bounds. Where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data. We implement these ideas using consumer panel data on the Danish milk market.

Type: Working / discussion paper
Title: Nonparametric methods for the characteristic model
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.cemmap.ac.uk/publications.php?publicati...
Language: English
Keywords: JEL Classification: C43, D11. Product characteristics, revealed preference
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14689
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