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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

Suggested Citation

  • Jan Heufer, 2013. "Testing revealed preferences for homotheticity with two-good experiments," Experimental Economics, Springer;Economic Science Association, vol. 16(1), pages 114-124, March.
  • Handle: RePEc:kap:expeco:v:16:y:2013:i:1:p:114-124
    DOI: 10.1007/s10683-012-9330-z
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Heufer, Jan & Hjertstrand, Per, 2017. "Homothetic Preferences Revealed," Working Paper Series 1187, Research Institute of Industrial Economics.
    2. Daniel R. Burghart & Thomas Epper & Ernst Fehr, 2014. "The two faces of independence: betweenness and homotheticity," ECON - Working Papers 179, Department of Economics - University of Zurich.
    3. Jan (J.P.M.) Heufer & Per Hjertstrand, 2017. "Homothetic Preferences Revealed," Tinbergen Institute Discussion Papers 17-103/I, Tinbergen Institute.
    4. Heufer, Jan & Hjertstrand, Per, 2015. "Consistent subsets: Computationally feasible methods to compute the Houtman–Maks-index," Economics Letters, Elsevier, vol. 128(C), pages 87-89.
    5. Jan Heufer, 2014. "Generating Random Optimising Choices," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 295-305, October.

    More about this item

    Keywords

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

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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