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WP202204-Rationalizability-cost-rationalizability-and-Afriats-efficiency-index.pdf

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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

    Matthew Polisson
    Matthew Polisson

    Research Associate University of Leicester

    Professor of Economics at the University of Leicester. His research interests are in applied microeconomics and microeconomic theory.

    Person graphic

    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: 14 December 2024).

    Grant

    ESRC Institute for the Microeconomic Analysis of Public Policy

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