Testing for Weak Separability and Utility Maximization with Incomplete Adjustment

Per Hjertstrand, James L. Swofford (jswoffor@southalabama.edu) and Gerald A. Whitney (gwhitney@uno.edu)
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James L. Swofford: Department of Economics and Finance, Postal: University of South Alabama
Gerald A. Whitney: Department of Economics and Finance, Postal: University of New Orleans

No 1327, Working Paper Series from Research Institute of Industrial Economics

Abstract: We develop models for weakly separable utility maximization with incomplete adjustment. By allowing for incomplete adjustment, these models account for the decision maker’s inability to instantaneously adjust to optimal allocations of demanded goods and assets. This is especially important when modelling preferences for durable goods and financial/monetary assets. We propose computationally attractive nonparametric revealed preference procedures to test the models using observed data on prices and quantities. An empirical application shows that it is important to account for incomplete adjustment in consumer demand models of durable consumption goods.

Keywords: Aggregation; Incomplete Adjustment; Revealed Preference; Utility maximization (search for similar items in EconPapers)
JEL-codes: C14 C60 D01 D10 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-03-25, Revised 2023-05-30
New Economics Papers: this item is included in nep-mic and nep-upt
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