Is utility transferable? A revealed preference analysis
AbstractWe provide a revealed preference analysis of the transferable utility hypothesis, which is widely used in economic models. First, we establish revealed preference conditions that must be satisfied for observed group behavior to be consistent with Pareto efficiency under transferable utility. Next, we show that these conditions are easily testable by means of integer programming methods. The tests are entirely nonparametric, which makes them robust with respect to specification errors. Finally, we demonstrate the practical usefulness of our conditions by means of an application to Spanish consumption data. To the best of our knowledge, this is the first empirical test of the transferable utility hypothesis.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces11.02.
Date of creation: Feb 2011
Date of revision:
Other versions of this item:
- Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2011. "Is utility transferable? A revealed preference analysis," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/297607, Katholieke Universiteit Leuven.
- Cherchye, L.J.H. & Demuynck, T. & Rock, B. de, 2011. "Is Utility Transferable? A Revealed Preference Analysis," Discussion Paper 2011-018, Tilburg University, Center for Economic Research.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
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