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Testing revealed preferences for homotheticity with two-good experiments

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  • Jan Heufer

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Abstract

It is shown that for two dimensional commodity spaces any homothetic utility function that rationalizes each pair of observations in a set of consumption data also rationalizes the entire set. The result is used to provide a simplified nonparametric test for homotheticity of demand and a measure for homothetic efficiency. The article thus provides a useful tool to screen data for severe violations of homotheticity before estimating parameters of homothetic utility functions. The new test and measure are applied to previously published data. Copyright Economic Science Association 2013

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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 16 (2013)
Issue (Month): 1 (March)
Pages: 114-124

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Handle: RePEc:kap:expeco:v:16:y:2013:i:1:p:114-124

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: Homothetic efficiency; Homothetic preferences; Laboratory experiments; Nonparametric tests; Revealed preference; C14; C91; D11; D12;

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