Nice demand and concavifiable smooth preferences: Determinateness of a utility function (Q1802945)
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English | Nice demand and concavifiable smooth preferences: Determinateness of a utility function |
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Nice demand and concavifiable smooth preferences: Determinateness of a utility function (English)
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29 June 1993
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Taking a new approach this paper shows: Given strongly convex binary preferences, the differentiability of demand and the concavifiability of smooth preference will allow us to select a utility function that is least concave, generating inferior as well as normal demands. The utility function is unique up to affine transformations so that the sign pattern of its cross derivatives are determinate. Established are three fundamental theorems justifying the controversial hypothesis that Pareto had made on the cross derivatives of a utility and that was thought redundant from an ordinalist's view point. A main result shows, at points where the income derivative of marginal utility of money vanishes and therefore the utility is least-concavifiable, the Pareto-Edgeworth-Kannai complements of a normal (resp., inferior) commodity, each being pairwise defined to a commodity as a positive cross-derivative of the least concave utility, are normal (resp. inferior), and, conversely for the P.E.K. substitutes. This serves to show that, on the contrary to the ordinalistic viewpoint, such a hypothesis, how introspective it may be, will be able to lead to an operationally meaningful economic prediction which can be statistically refutable.
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Fenchel's one-point conditions
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least-concavifiable smooth preferences
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differentiable demand
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Pareto hypothesis
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strongly convex binary preferences
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