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This note explains the equivalence between approximate rationalizability and approximate cost-rationalizability within the context of consumer demand. In connection with these results, we interpret Afriat’s (1973) critical cost efficiency index (CCEI) as a measure of cost (in)efficiency, in the sense that a consumer is spending more money than is required to achieve her utility targets.
Authors
Research Associate University of Leicester
Professor of Economics at the University of Leicester. His research interests are in applied microeconomics and microeconomic theory.
John Quah
Working Paper details
- DOI
- 10.1920/wp.ifs.2022.0422
- Publisher
- Institute for Fiscal Studies
Suggested citation
Polisson, M and Quah, J. (2022). Rationalizability, cost-rationalizability, and Afriat’s efficiency index. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/rationalizability-cost-rationalizability-and-afriats-efficiency-index (accessed: 8 May 2024).
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