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Interdependent Preferences, Potential Games and Household Consumption

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  • Deb, Rahul

Abstract

This paper presents a nonparametric model of interdependent preferences, where an individual’s consumption may be an externality on the preferences of other consumers. We assume that individual price consumption data is observed for all consumers and prove that the general model imposes few restrictions on the observed data, where the consistency requirement is Nash rationalizability. We motivate potential games as an important sub class of games where the family of concave potential games is refutable and imposes stronger restrictions on observed data. As an application of this model, we discuss inter-household consumption data. Finally, we use this framework to extend the analysis of Brown and Matzkin (1996) on refutable pure exchange economies to pure exchange economies with externalities.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6818.

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Date of creation: Jan 2008
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Handle: RePEc:pra:mprapa:6818

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Keywords: Potential games; Externalities; Nonparametric restrictions; Revealed Preference; Household consumption; Nash-Walras equilibrium;

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  1. Browning, M. & Chiappori, P.A., 1994. "Efficient Intra-Household allocations: A General Characterization and Empirical Tests," DELTA Working Papers 94-16, DELTA (Ecole normale supérieure).
  2. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-67, June.
  3. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  4. Mäler, K-G. & Xepapadeas, A. & Zeeuw, A.J. de, 2000. "The Economics of Shallow Lakes," Discussion Paper 2000-69, Tilburg University, Center for Economic Research.
  5. Anat Bracha & Donald J. Brown, 2007. "Affective Decision Making: A Behavioral Theory of Choice," Cowles Foundation Discussion Papers 1633, Cowles Foundation for Research in Economics, Yale University.
  6. Dubey, Pradeep & Haimanko, Ori & Zapechelnyuk, Andriy, 2006. "Strategic complements and substitutes, and potential games," Games and Economic Behavior, Elsevier, vol. 54(1), pages 77-94, January.
  7. Ghosal, S. & Polemarchakis, H.M., . "Nash-Walras equilibria," CORE Discussion Papers RP -1260, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Konishi, Hideo & Le Breton, Michel & Weber, Shlomo, 1998. "Equilibrium in a Finite Local Public Goods Economy," Journal of Economic Theory, Elsevier, vol. 79(2), pages 224-244, April.
  9. Garcia, Alfredo & Arbelaez, Luis E., 2002. "Market power analysis for the Colombian electricity market," Energy Economics, Elsevier, vol. 24(3), pages 217-229, May.
  10. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
  11. Deb, Rahul, 2007. "Computational Inefficiency Of Nonparametric Tests For Consistency Of Data With Household Consumption," MPRA Paper 2700, University Library of Munich, Germany.
  12. Schall, Lawrence D, 1972. "Interdependent Utilities and Pareto Optimality," The Quarterly Journal of Economics, MIT Press, vol. 86(1), pages 19-24, February.
  13. Andrew Postlewaite, . ""The Social Basis of Interdependent Preferences''," CARESS Working Papres 97-14, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  14. Donald J. Brown & Rosa L. Matzkin, 1995. "Testable Restrictions on the Equilibrium Manifold," Cowles Foundation Discussion Papers 1109, Cowles Foundation for Research in Economics, Yale University.
  15. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
  16. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  17. Voorneveld, M. & Norde, H.W., 1997. "A characterisation of ordinal potential games," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74020, Tilburg University.
  18. Abraham Neyman, 1997. "Correlated Equilibrium and Potential Games," International Journal of Game Theory, Springer, vol. 26(2), pages 223-227.
  19. Cherchye, L.J.H. & Rock, B. de & Vermeulen, F.M.P., 2004. "The Collective Model of Household Consumption: A Nonparametric Characterization," Discussion Paper 2004-76, Tilburg University, Center for Economic Research.
  20. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  21. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  22. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  23. Anat Bracha & Donald J Brown, 2007. "Affective Decision Making: a Behavioral Theory of Choice," Levine's Bibliography 122247000000001676, UCLA Department of Economics.
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