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Rationalizing and Curve-Fitting Demand Data with Quasilinear Utilities

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Abstract

In the empirical and theoretical literature a consumer's utility function is often assumed to be quasilinear. In this paper we provide necessary and sufficient conditions for testing if the consumer acts as if she is maximizing a quasilinear utility function over her budget set. If the consumer's choices are inconsistent with maximizing a quasilinear utility function over her budget set, then we compute the "best" quasilinear rationalization of her choices.

Suggested Citation

  • Donald J. Brown & Caterina Calsamiglia, 2003. "Rationalizing and Curve-Fitting Demand Data with Quasilinear Utilities," Cowles Foundation Discussion Papers 1399R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2004.
  • Handle: RePEc:cwl:cwldpp:1399r
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d13/d1399-r.pdf
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    References listed on IDEAS

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    1. John K.-H. Quah, 2000. "The Monotonicity of Individual and Market Demand," Econometrica, Econometric Society, vol. 68(4), pages 911-930, July.
    2. Chiappori, Pierre-Andre & Rochet, Jean-Charles, 1987. "Revealed Preferences and Differentiable Demand: Notes and Comments," Econometrica, Econometric Society, vol. 55(3), pages 687-691, May.
    3. Donald J. Brown & Marten H. Wegkamp, 2003. "Tests of Independence in Separable Econometric Models," Cowles Foundation Discussion Papers 1395, Cowles Foundation for Research in Economics, Yale University.
    4. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
    5. Brown, Donald J & Matzkin, Rosa L, 1996. "Testable Restrictions on the Equilibrium Manifold," Econometrica, Econometric Society, vol. 64(6), pages 1249-1262, November.
    6. Donald J. Brown & Rosa L. Matzkin, 1998. "Estimation of Nonparametric Functions in Simultaneous Equations Models, with an Application to Consumer Demand," Cowles Foundation Discussion Papers 1175, Cowles Foundation for Research in Economics, Yale University.
    7. Donald J. Brown & Caterina Calsamiglia, 2003. "The Strong Law of Demand," Cowles Foundation Discussion Papers 1399, Cowles Foundation for Research in Economics, Yale University.
    8. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
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    Cited by:

    1. Anat Bracha, 2004. "Consistency and Refutability of Affective Choice," Yale School of Management Working Papers amz2639, Yale School of Management.
    2. Anat Bracha & Donald J Brown, 2007. "Affective Decision Making: a Behavioral Theory of Choice," Levine's Bibliography 122247000000001676, UCLA Department of Economics.

    More about this item

    Keywords

    Quasilinear utilities; Afriat inequalities; Curve-fitting;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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