NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Connected Substitutes and Invertibility of Demand

Steven T. Berry, Amit Gandhi, Philip Haile

NBER Working Paper No. 17193
Issued in July 2011
NBER Program(s):   IO   TWP

We consider the invertibility of a nonparametric nonseparable demand system. Invertibility of demand is important in several contexts, including identification of demand, estimation of demand, testing of revealed preference, and economic theory requiring uniqueness of market clearing prices. We introduce the notion of "connected substitutes" and show that this structure is sufficient for invertibility. The connected substitutes conditions require weak substitution between all goods and sufficient strict substitution to necessitate treating them in a single demand system. These conditions are satisfied in many standard models, have transparent economic interpretation, and allow us to show invertibility without functional form restrictions, smoothness assumptions, or strong domain restrictions.

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Document Object Identifier (DOI): 10.3386/w17193

Published: Steven Berry, Amit Gandhi and Philip Haile (2013), \Connected Substitutes and Invertibility of Demand," Econometrica v. 81(5) (September), pp. 2087-2111 (also Cowles Foundation Discussion Paper # 1806R.)

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