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Private versus public consumption within groups : testing the nature of goods from aggregate data

  • Laurens Cherchye

    ()

    (Center for Economic Studies - Department of Economics, CentER - Tilburg University)

  • Bram De Rock

    ()

    (ECARES - European Center for Advanced Research in Economics and Statistics - Université Libre de Bruxelles, ECORE - Université Libre de Bruxelles)

  • Vincenzo Platino

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

We study the testability implications of public versus private consumption. The distinguishing feature of our approach is that we start from a revealed preference characterization of collectively rational behavior. Remarkably, we find that assumptions regarding the public or private nature of specific goods do have testability implications, even if one only observes the aggregate group consumption. In fact, these testability implications apply as soon as the analysis includes three goods and four obervations. This stands in sharp contrast with existing results that start from a differential characterization of collectively rational behavior. In our opinion, our revealed preference approach obtains stronger testability conclusions because it focuses on a global characterization of collective rationality, whereas the differential approach starts from a local characterization.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00543999.

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Date of creation: Aug 2010
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Handle: RePEc:hal:cesptp:halshs-00543999
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