Testing the homogeneous marginal utility of income assumption

Thomas Demuynck

Econometric Reviews, 2018, vol. 37, issue 10, 1120-1136

Abstract: We develop a test for the hypothesis that every agent from a population of heterogeneous consumers has the same marginal utility of income function. This homogeneous marginal utility of income (HMUI) assumption is often (implicitly) used in applied demand studies because it has nice aggregation properties and facilitates welfare analysis. If the HMUI assumption holds, we can also identify the common marginal utility of income function. We apply our results using a U.S. cross sectional dataset on food consumption.

Date: 2018
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DOI: 10.1080/07474938.2016.1222235

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