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The Revealed Preference Approach to Collective Consumption Behavior: Testing, Recovery and Welfare Analysis

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Author Info

  • Cherchye, Laurens

    ()
    (K.U.Leuven)

  • De Rock, Bram

    ()
    (ECARES, Free University of Brussels)

  • Vermeulen, Frederic

    ()
    (Tilburg University)

Abstract

We extend the nonparametric ‘revealed preference’ methodology for analyzing collective consumption behavior (with consumption externalities and public consumption), to render it useful for empirical applications that deal with welfare-related questions. First, we provide a nonparametric necessary and sufficient condition for collectively rational group behavior that incorporates the possibility of assignable quantity information. This characterizes collective rationality in terms of feasible personalized prices, personalized quantities and income shares (representing the underlying sharing rule). Subsequently, we present nonparametric testing tools for data consistency with special cases of the collective model, which impose specific structure on the preferences of the group members (in terms of consumption externalities and public consumption); and we show that these testing tools in turn allow for nonparametrically recovering (bounds on) feasible personalized prices, personalized quantities and income shares that underlie observed (collectively rational) group behavior. In addition, we present formally similar testing and recovery tools for the general collective consumption model, which imposes minimal a priori structure. Interestingly, the proposed testing and recovery methodology can be implemented through integer programming (IP and MILP), which is attractive for practical applications. Finally, while we argue that assignable quantity information generally entails more powerful recovery results, we also demonstrate that precise nonparametric recovery (i.e. tight bounds) can be obtained even if no assignable quantity information is available.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3062.

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Length: 40 pages
Date of creation: Sep 2007
Date of revision:
Publication status: published as 'The revealed preference approach to collective consumption behavior: testing and sharing rule recovery' in: Review of Economic Studies, 2011, 78 (1), 175 - 198
Handle: RePEc:iza:izadps:dp3062

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Related research

Keywords: collective model; revealed preferences; consumption; testing; welfare analysis; recovery; integer programming;

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Cited by:
  1. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2010. "An Afriat theorem for the collective model of household consumption," ULB Institutional Repository 2013/131711, ULB -- Universite Libre de Bruxelles.
  2. Ennio Bilancini, 2010. "On the Rationalizability of Observed Consumers Choise when Prefeerences else," Department of Economics 0636, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
  3. Ennio Bilancini, 2010. "On the rationalizability of observed consumers’ choices when preferences depend on budget sets and (potentially) on anything else," Center for Economic Research (RECent) 052, University of Modena and Reggio E., Dept. of Economics.

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