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The Econometrics of Nonlinear Budget Sets

Author

Listed:
  • Sören Blomquist

    (Uppsala Center for Fiscal Studies, Department of Economics, Uppsala University, Uppsala, Sweden)

  • Jerry A. Hausman

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

  • Whitney K. Newey

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

Abstract

This article surveys the development of nonparametric models and methods for estimation of choice models with nonlinear budget sets. The discussion focuses on the budget set regression, that is, the conditional expectation of a choice variable given the budget set. Utility maximization in a nonparametric model with general heterogeneity reduces the curse of dimensionality in this regression. Empirical results using this regression are different from maximum likelihood and give informative inference. The article also considers the information provided by kink probabilities for nonparametric utility with general heterogeneity. Instrumental variable estimation and the evidence it provides of heterogeneity in preferences are also discussed.

Suggested Citation

  • Sören Blomquist & Jerry A. Hausman & Whitney K. Newey, 2023. "The Econometrics of Nonlinear Budget Sets," Annual Review of Economics, Annual Reviews, vol. 15(1), pages 287-306, September.
    • Handle: RePEc:anr:reveco:v:15:y:2023:p:287-306
    DOI: 10.1146/annurev-economics-082222-065323
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    More about this item

    Keywords

    random utility model; budget set regression; bunching; instrumental variables;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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