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Faculty of Economics

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Bhattacharya, D.

Income Effects and Rationalizability in Multinomial Choice Models

CWPE1884

Abstract: In multinomial choice settings, Daly-Zachary (1978) and Armstrong-Vickers (2015) provided closedform conditions, under which choice probability functions can be rationalized via random utility models. A key condition is Slutsky symmetry. We first show that in the multinomial context, Daly-Zachary’s Slutsky symmetry is equivalent to absence of income-effects. Next, for general multinomial choice that allows for income-effects, we provide global shape restrictions on choice probability functions, which are shown to be sufficient for rationalizability. Finally, we outline nonparametric identification of preference distributions using these results. The theory of linear partial differential equations plays a key role in our analysis.

Keywords: Multinomial Choice, Unobserved Heterogeneity, random Utility, Rationalizability/Integrability, Slutsky-Symmetry, Income Effects, Partial Differential Equations, Nonparametric Identification

JEL Codes: C14 C25 D11

Author links: Debopam Bhattacharya  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1884.pdf

Open Access Link: https://doi.org/10.17863/CAM.36009