Preference conditions for invertible demand functions

Diasakos, T. and Gerasimou, G. (2022) Preference conditions for invertible demand functions. American Economic Journal: Microeconomics, 14(2), pp. 113-138. (doi: 10.1257/mic.20190262)

Abstract

It is frequently assumed in several domains of economics that demand functions are invertible in prices. At the primitive level of preferences, however, the corresponding characterization has remained elusive. We identify necessary and sufficient conditions on a utility-maximizing consumer’s preferences for her demand function to be continuous and invertible: strict convexity, strict monotonicity, and differentiability in the sense of Rubinstein (2006). We further show that Rubinstein differentiability is equivalent to the indifference sets being smooth, which is weaker than Debreu’s (1972) notion of preference smoothness. We finally discuss implications of our analysis for demand functions that satisfy the “strict law of demand.”

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Gerasimou, Professor Georgios
• Authors: Diasakos, T., and Gerasimou, G.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: American Economic Journal: Microeconomics
• Publisher: American Economic Association
• ISSN: 1945-7669
• ISSN (Online): 1945-7685
• Copyright Holders: Copyright © 2022 American Economic Association
• First Published: First published in American Economic Journal: Microeconomics 14(2):113-138
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher