Limitations and Extensions
One limitation of comparative statics using the implicit function theorem is that results are valid only in a (potentially very small) neighborhood of the optimum—that is, only for very small changes in the exogenous variables. Another limitation is the potentially overly restrictive nature of the assumptions conventionally used to justify comparative statics procedures.
Paul Milgrom and Chris Shannon pointed out in 1994 that the assumptions conventionally used to justify the use of comparative statics on optimization problems are not actually necessary—specifically, the assumptions of convexity of preferred sets or constraint sets, smoothness of their boundaries, first and second derivative conditions, and linearity of budget sets or objective functions. In fact, sometimes a problem meeting these conditions can be monotonically transformed to give a problem with identical comparative statics but violating some or all of these conditions; hence these conditions are not necessary to justify the comparative statics. Milgrom and Shannon developed a theory and method for comparative statics analysis using only conditions that are independent of order-preserving transformations. The method uses lattice theory and introduces the notions of quasi-supermodularity and the single-crossing condition.
Read more about this topic: Comparative Statics
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