Sharp nonparametric bounds are derived for counterfactual demands and Hicksian compensating and equivalent variations. These "i-bounds" refine and extend earlier results of Blundell, Browning, and Crawford (2008). We show that their bounds are sharp under the Weak Axiom of Revealed Preference (WARP) since they do not require transitivity. The new bounds are sharp under the Strong Axiom of Revealed Preference (SARP). By requiring transitivity they can be used to bound welfare measures. The new bounds on welfare measures are shown to be operationalized through algorithms that are easy to implement.
Authors
Richard Blundell
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Martin Browning
Martin is an IFS Research Associate, a Nuffield Senior Research Fellow and a Professor of Economics at the University of Oxford.
Laurens Cherchye
Laurens is a Research Associate of the IFS and a Professor in the Department of Economics, KU Leuven.
Bram De Rock
Bram is a Research Associate of the IFS, a Professor of Economics at ULB and a Professor of Mathematics and Statistics at KU Leuven.
Frederic Vermeulen
Frederic is a Research Associate of the IFS, a Professor of Economics at the University of Leuven and a Research Fellow at the CEPR.
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