Cosaert, Sam (2013). Revealed preferences for diamond goods. CES-Discussion paper series, DPS13. 26
When consumers do not only care for the intrinsic consumption component of commodities but also for the value of a commodity, it can be rational to purchase products as they become more expensive. Standard revealed preference conditions are however unable to take diamond effects into account. We develop a theoretical model and the associated revealed preference conditions to analyze commodities with different degrees of diamondness. On the basis of real consumer data from the Russian Longitudinal Monitoring Survey, we test the empirical performance of different models with and without diamond effects. It turns out that allowing for diamond effects improves the predictive success of the models. We also link the newly identified diamondness weights to the visibility of commodities. The results suggest that visible goods are more likely to induce diamond effects.
CES-Discussion paper series, DPS13. 26