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Revealed preferences for diamond goods

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  • Sam COSAERT

Abstract

When consumers do not only care for the intrinsic consumption component of commodities but also for the value of a commodity, it can be rational to purchase products as they become more expensive. Standard revealed preference conditions are however unable to take diamond effects into account. We develop a theoretical model and the associated revealed preference conditions to analyze commodities with different degrees of diamondness. On the basis of real consumer data from the Russian Longitudinal Monitoring Survey, we test the empirical performance of different models with and without diamond effects. It turns out that allowing for diamond effects improves the predictive success of the models. We also link the newly identified diamondness weights to the visibility of commodities. The results suggest that visible goods are more likely to induce diamond effects.

Suggested Citation

  • Sam COSAERT, 2013. "Revealed preferences for diamond goods," Working Papers of Department of Economics, Leuven ces13.26, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces13.26
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    Cited by:

    1. Victor H. Aguiar & Roberto Serrano, 2018. "Cardinal Revealed Preference, Price-Dependent Utility, and Consistent Binary Choice," Working Papers 2018-3, Brown University, Department of Economics.
    2. Sam Cosaert & Alexandros Theloudis & Bertrand Verheyden, 2023. "Togetherness in the Household," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 529-579, February.
    3. Ori Heffetz, 2018. "Expenditure Visibility and Consumer Behavior: New Evidence," NBER Working Papers 25161, National Bureau of Economic Research, Inc.
    4. Sam Cosaert & Veerle Hennebel, 2023. "Parental Childcare with Process Benefits," Economica, London School of Economics and Political Science, vol. 90(357), pages 339-371, January.
    5. Florian H. Schneider, 2020. "Signaling ideology through consumption," ECON - Working Papers 367, Department of Economics - University of Zurich, revised Jul 2022.
    6. Schlee, Edward E. & Ali Khan, M., 2023. "Money-metrics in local welfare analysis: Pareto improvements and equity considerations," Journal of Economic Theory, Elsevier, vol. 213(C).
    7. Antonia Grohmann & Melanie Koch, 2022. "The Effect of Social Comparison on Debt Taking: Experimental Evidence," Discussion Papers of DIW Berlin 1996, DIW Berlin, German Institute for Economic Research.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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