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Nonparametric methods for characteristics models
Date started: 01 January 2004
Characteristics models are based on the idea that people have preferences over generic characteristics of goods and services and they have been found to be useful in many areas of economics and psychology. 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 consumers 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. The research was presented at the W.M. (Terence) Gorman Memorial Workshop in London in June 2004 and is described in cemmap working paper CWP18/04.
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14 December 2004
cemmap Working Papers
Article
In this paper we develop a revealed preference-based nonparametric approach to characteristics models.

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