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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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Bibliographic Info

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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  12. Brown, Donald J & Matzkin, Rosa L, 1996. "Testable Restrictions on the Equilibrium Manifold," Econometrica, Econometric Society, vol. 64(6), pages 1249-62, November.
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  19. Schall, Lawrence D, 1972. "Interdependent Utilities and Pareto Optimality," The Quarterly Journal of Economics, MIT Press, vol. 86(1), pages 19-24, February.
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