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Interdependent Preferences, Potential Games and Household Consumption

  • Deb, Rahul

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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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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  1. Abraham Neyman, 1997. "Correlated Equilibrium and Potential Games," International Journal of Game Theory, Springer, vol. 26(2), pages 223-227.
  2. Andrew Postlewaite, . "The Social Basis of Interdependent Preferences," Penn CARESS Working Papers 6bd000503382ae2f0b90d25e3, Penn Economics Department.
  3. Garcia, Alfredo & Arbelaez, Luis E., 2002. "Market power analysis for the Colombian electricity market," Energy Economics, Elsevier, vol. 24(3), pages 217-229, May.
  4. Deb, Rahul, 2007. "Computational Inefficiency Of Nonparametric Tests For Consistency Of Data With Household Consumption," MPRA Paper 2700, University Library of Munich, Germany.
  5. Browning, M. & Chiappori, P.A., 1994. "Efficient Intra-Household allocations: A General Characterization and Empirical Tests," DELTA Working Papers 94-16, DELTA (Ecole normale supérieure).
  6. Konishi, Hideo & Le Breton, Michel & Weber, Shlomo, 1998. "Equilibrium in a Finite Local Public Goods Economy," Journal of Economic Theory, Elsevier, vol. 79(2), pages 224-244, April.
  7. Anat Bracha & Donald J Brown, 2007. "Affective Decision Making: a Behavioral Theory of Choice," Levine's Bibliography 122247000000001676, UCLA Department of Economics.
  8. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
  9. Ghosal, S. & Polemarchakis, H.M., . "Nash-Walras equilibria," CORE Discussion Papers RP 1260, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Cherchye, L.J.H. & de Rock, B. & Vermeulen, F.M.P., 2007. "The collective model of household consumption : A nonparametric characterization," Other publications TiSEM 0a104373-4fb6-4ef2-9d2b-2, Tilburg University, School of Economics and Management.
  11. Mäler, K-G. & Xepapadeas, A. & de Zeeuw, A.J., 2000. "The Economics of Shallow Lakes," Discussion Paper 2000-69, Tilburg University, Center for Economic Research.
  12. Voorneveld, Mark & Norde, Henk, 1997. "A Characterization of Ordinal Potential Games," Games and Economic Behavior, Elsevier, vol. 19(2), pages 235-242, May.
  13. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  14. Schall, Lawrence D, 1972. "Interdependent Utilities and Pareto Optimality," The Quarterly Journal of Economics, MIT Press, vol. 86(1), pages 19-24, February.
  15. Dubey, Pradeep & Haimanko, Ori & Zapechelnyuk, Andriy, 2006. "Strategic complements and substitutes, and potential games," Games and Economic Behavior, Elsevier, vol. 54(1), pages 77-94, January.
  16. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
  17. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  18. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  19. Brown, Donald J & Matzkin, Rosa L, 1996. "Testable Restrictions on the Equilibrium Manifold," Econometrica, Econometric Society, vol. 64(6), pages 1249-62, November.
  20. Chiappori, P.A., 1989. "Collective Labour Supply and Welfare," DELTA Working Papers 89-07, DELTA (Ecole normale supérieure).
  21. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  22. Anat Bracha & Donald J. Brown, 2007. "Affective Decision Making: A Behavioral Theory of Choice," Cowles Foundation Discussion Papers 1633, Cowles Foundation for Research in Economics, Yale University.
  23. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
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