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Is utility transferable? A revealed preference analysis

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  • Laurens CHERCHYE
  • Thomas DEMUYNCK
  • Bram DE ROCK

Abstract

We provide a revealed preference analysis of the transferable utility hypothesis, which is widely used in economic models. First, we establish revealed preference conditions that must be satisfied for observed group behavior to be consistent with Pareto efficiency under transferable utility. Next, we show that these conditions are easily testable by means of integer programming methods. The tests are entirely nonparametric, which makes them robust with respect to specification errors. Finally, we demonstrate the practical usefulness of our conditions by means of an application to Spanish consumption data. To the best of our knowledge, this is the first empirical test of the transferable utility hypothesis.

Suggested Citation

  • Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK, 2011. "Is utility transferable? A revealed preference analysis," Working Papers Department of Economics ces11.02, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces11.02
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2015. "Is utility transferable? a revealed preference analysis," Theoretical Economics, Econometric Society, vol. 10(1), January.
    2. Ian Crawford & Bram De Rock, 2014. "Empirical Revealed Preference," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 503-524, August.
    3. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Frederic Vermeulen, 2017. "Household Consumption When the Marriage Is Stable," American Economic Review, American Economic Association, vol. 107(6), pages 1507-1534, June.
    4. Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK, 2010. "Noncooperative household consumption with caring," Working Papers Department of Economics ces10.34, KU Leuven, Faculty of Economics and Business, Department of Economics.
    5. Nesterov, Y & Shikhman, V., 2015. "Computation of Fisher-Gale equilibrium by auction," CORE Discussion Papers 2015035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Agatsuma, Yasushi, 2016. "Testable implications of the core in TU market games," Journal of Mathematical Economics, Elsevier, vol. 64(C), pages 23-29.
    7. Thomas Demuynck & Tom Potoms, 2018. "Weakening Transferable Utility: the Case of Non-intersecting Pareto Curves," Working Papers ECARES 2018-17, ULB -- Universite Libre de Bruxelles.
    8. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Frederic Vermeulen, 2014. "Household consumption when marriage is stable," IFS Working Papers W14/26, Institute for Fiscal Studies.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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