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Annual Review of Economics

Volume 15, 2023

The Econometrics of Nonlinear Budget Sets

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.

Keyword(s): budget set regression, bunching, instrumental variables, JEL C14, JEL C24, JEL H31, JEL H34, JEL J22, random utility model
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/content/journals/10.1146/annurev-economics-082222-065323
2023-09-13
2024-05-06
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/content/journals/10.1146/annurev-economics-082222-065323
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The Econometrics of Nonlinear Budget Sets
Annual Review of Economics 15, 287 (2023); https://doi.org/10.1146/annurev-economics-082222-065323
/content/journals/10.1146/annurev-economics-082222-065323
/content/journals/10.1146/annurev-economics-082222-065323
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