Generalized Rational Random Errors

Jeffrey LaFrance ()

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: Theil's theory of rational random errors is sufficient for strict exogeneity of group expenditure in separable demand models. Generalized rational random errors is necessary and sufficient for strict exogeneity of group expenditure. A simple, robust, asymptotically normal t-test of this hypothesis is derived based on the generalized method of moments. An application to per capita annual U.S. food demand in the 20th century strongly rejects exogeneity of food expenditure in a model that in all other respects is highly compatible with the data set and with the implications of economic theory.

Keywords: demand; generalized method of moments; rational random errors; weak separability (search for similar items in EconPapers)
Date: 2002-12-01
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Working Paper: Generalized Rational Random Errors (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:agrebk:qt6p33q166

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