Revealed Preference Analysis with Normal Goods: Application to Cost-of-Living Indices

Laurens Cherchye, Thomas Demuynck, Bram De Rock, Khushboo Surana

Research output: Contribution to journalArticlepeer-review


We present a revealed preference methodology for nonparametric demand analysis under the assumption of normal goods. Our methodology is flexible in that it allows for imposing normality on any subset of goods. We show the usefulness of our methodology for empirical welfare analysis through cost-of-living indices. An illustration to US consumption data drawn from the Panel Study of Income Dynamics (PSID) demonstrates that mild normality assumptions can substantially strengthen the empirical analysis. It obtains considerably tighter bounds on cost-of-living indices and a significantly more informative classification of better-off and worse-off individuals after the 2008 financial crisis.
Original languageEnglish
Pages (from-to)165-188
Number of pages24
JournalAmerican Economic Journal: Microeconomics
Issue number3
Publication statusPublished - 3 Aug 2020

Bibliographical note

Copyright 2020 American Economic Association. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details

Cite this