Professional Documents
Culture Documents
Afriat (1973) - On A System of Inequalities in Demand Analysis - IER PDF
Afriat (1973) - On A System of Inequalities in Demand Analysis - IER PDF
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/
info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.
Wiley, Economics Department of the University of Pennsylvania and Institute of Social and Economic Research -
- Osaka University are collaborating with JSTOR to digitize, preserve and extend access to International Economic Review.
http://www.jstor.org
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INTERNATIONAL ECONOMIC REVIEW
Vol. 14, No. 2, June, 1973
BY S. N. AFRIAT
1. INTRODUCTION
2. EXPENDITURE CORRESPONDENCE
Let Qn, Qn denote the spaces of non-negative row and column vectors, Q
being the non-negative numbers. Then any p C Qn,x E Qnhave a product px C Q,
which can signify the cost of quantities x at prices p.
A demand is any price-quantity pair (p, x) C QnX Qnwith px > 0. Then
u -M-1p, where M = px is the expenditure, defines the associated exchange
vector. It forms with x a pair (u, x) such that ux = 1 which can be called the
budget associated with the demand.
A utility relation is any order in Qn, that is any Rc Qn x Qnwhich is re-
flexive and transitive,
(2.1) xRx, xRyR... Rz xRz.
A utility function is any : Qn , Q. It represents a utility relation R if
X
(2-2 xw Ry OW 0(Y _ )
* Manuscriptreceived April 5, 1972; revised September25, 1972.
460
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INEQUALITIESIN DEMAND ANALYSIS 461
3. UTILITY-COST EFFICIENCIES
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
462 S. N. AFRIAT
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INEQUALITIES IN DEMAND ANALYSIS 463
4. PARTIAL EFFICIENCY
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
464 S. N. AFRIAT
Evidently, if
(4.5) 0 ? e ? e' ?1
o~~~~B
FIGURE 1
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INEQUALITIESIN DEMAND ANALYSIS 465
then
(4.6) B = SOD Se,D SeD Si = {Xi} -
That is, the tolerance regions Se for x for M a nested family of convex sets,
starting at the entire budget simplex B when e = 0 and, as e increases to 1,
shrinking to the single point xl attained when e = 1. The higher the level of
cost-efficiency the less the tolerance, and when cost-efficiency is at its maximum
1 all tolerance is removed: the consumer is required, as usual, to purchase just
that point which gives the absolute maximum of utility.
For an expenditure correspondence E, now define
(4.7) HE(R, e) (A xEu)H(R, e; u, x)
as compatibility of E with R at the level of cost-efficiency e. Then
(4.8) HE(e) = (V R)HE(R, e)
will define e-consistency of E, or consistency at the level of cost-efficiency e.
Immediately
5. CONSISTENCY TEST
The condition HE(e) will now be investigated on the basis of a finite corre-
spondence E with elements (u,, xt), t = 1, ..., k derived from a set of demands
(pt, xt), with ut = MAVtptwhere Mt = ptxt. Let Drs = UrXs - 1, and for any
wwith0<w? 1 letDw= Drs+ w. If e is a cost-efficiency, so 0 <e < 1, then
1 - e = w is a cost-innefficiency, and 0 ? w < 1.
With E now fixed, HE(e) will be denoted Hw. A further condition on E,
defined for every w, is
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
466 S. N. AFRIAT
An alternative statement is
(5.2) Dw < 0, Dt < 0,.. D .,Dr < 0
Dw 0.
In the following Kw appears as a necessary condition for Hw, and later it will
be proved also sufficient.
THEOREM1. HW )KW.
By definition Hw means there exists an order R such that
()Ur urx < 1-w X
XrRx
(H") xRxr 2 Ux>1w
it follows that
) (H') Dw < O XrRxs
(H"t) XsRXr Div > .
Hence
(5.6) DK) < 0, Dt' < 0. .* Dr ? 0
by (H') in (5.5) implies
Thus Hw implies (5.6) implies (5.9), that is HIv implies KW, as required.
6. CONSTRUCTION ALGORITHM
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INEQUALITIES IN DEMAND ANALYSIS 467
7. CRITICAL EFFICIENCY
(7.2) HW KW,
The foregoing discussion shows a motive for the main theorem which is going
to be proved in Section 8, which is the equivalence of Kw and CW. It is noticed
also that the consequent equivalence of Hw and Kw provides a simple procedure
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
468 S. N. AFRIAT
for determining the critical cost efficiency eE of the given finite correspondence
E. Denoting this by e, and with w = 1-e, so that
(7.4) w=inf[w:Hw]
the equivalence (7.2) shows that also
(7.5) w = inf [w: Kw]
and with this expression w is easy to evaluate.
Thus, let
,
(7.6) d = min max [Drs, .D .. Dqr]
rs . q
In the following, the set of numbers Drs can, for simplicity, stand for the
former set of numbers Dw = Drs + w for any w. Since the earlier Drr = 0 SO
that DrWr> 0 for all w ? 0, it is a set of numbers Drswith Drr > 0 that will be
considered.
8. THEOREM ON INEQUALITIES
For any numbers Drs(r, s = 1, ... , k) with Drr _ 0, the following conditions
are defined:
(8.1) (C) There exist 'r > 0, Or > 0
such that 2rDrs2 Os-r
(8.2) (S) There exist rs> 0
such that E Ors = E Osr
S S
and E DrsOrs< 0
S
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INEQUALITIESIN DEMAND ANALYSIS 469
I being the unit matrix. But, by the standard result, this is false if and only if
This is
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
470 S. N. AFRIAT
(ub)j uibij
=Z Orsbrs j
rs
=E OjsDjs
S
(UC)k = UiCik
= S?,
rs
OrsCrs,k
= Oks ErkO
s r
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
INEQUALITIESIN DEMAND ANALYSIS 471
Assume, K, that is
Drs < 0, Dst <_ 0, Dqr 0_
while
(ii) Ej DDr,iOr< 0
for some s. Then by (iii), Ost > 0 for some t. But then (i) with i - s implies
Ost > 0, Ds, < 0 for some t. Similarly t has a successor, and the sequence r, s, t,
... can continue until it arrives at an element q whose successor repeats some
earlier element r', since the number of elements is finite.
Then a sequence
r, s, t, ..., r'1,*,t', ...
lhasbeen constructed, where q is followed by r', so r' and its successors form a
cycle. If r - r', then
Drs < 0, Dst ? 0,
0 .. * Dqr ? 0,
so K is demonstrated. If r -/ r' but
(Dr,s', D5, . ., Dqr-) < 0
while
(v) i = min (er's', Os't's ... *Oqr') > 0
Let
- rs ...q
Then because of (iv) and (v) it appears that (i), (ii) and (iii) are still satisfied
with 0 in place of 0. Then the sequence r, s, . . ., r' can be continued, but the
first continuation to q and back to r' cannot be repeated since some one of
arls' . qr' is zero. By eliminatingin this way everycontinuationwhich does
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions
472 S. N. AFRIAT
REFERENCES
[1] AFRIAT, S. N., "The Construction of Utility Functions from Finite Expenditure Data,"
International Economic Review, VIII (February, 1967), 67-77.
[2] , "On Sum-Symmetric Matrices," Linear Algebra and its Applications, forth-
coming.
[3] DEBREU, G., Theoryof Value (New York: John Wiley, 1959),68-69.
[4] GALE, D., Theory of Linear EconomicModels (New York: McGrawHill, 1960).
[5] HoUTHAKKER, H. S., "Revealed Preference and the Utility Function," Economica, New
Series, XVII (May, 1950), 159-174.
[6] SAMUELSON, P. A., "Consumption Theory in Terms of Reaveled Reference," Economica,
New Series, XV (November, 1948), 243-253.
This content downloaded from 152.92.1.3 on Sun, 07 Jun 2015 13:11:04 UTC
All use subject to JSTOR Terms and Conditions