An Afriat Theorem for the collective model of household consumption

Laurens Cherchye, Bram De Rock and Frederic Vermeulen

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: We provide a nonparametric ‘revealed preference’ characterization of rational household behavior in terms of the collective consumption model, while accounting for general (possibly non-convex) individual preferences. We establish a Collective Axiom of Revealed Preference (CARP), which provides a necessary and sufficient condition for data consistency with collective rationality. Our main result takes the form of a ‘collective’ version of the Afriat Theorem for rational behavior in terms of the unitary model. This theorem has some interesting implications. With only a finite set of observations, the nature of consumption externalities (positive or negative) in the intra-household allocation process is non-testable. The same non-testability conclusion holds for privateness (with or without externalities) or publicness of consumption. By contrast, concavity of individual utility functions (representing convex preferences) turns out to be testable. In addition, monotonicity is testable for the model that assumes all household consumption is public.

Date: 2008-09
New Economics Papers: this item is included in nep-cdm
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Related works:
Journal Article: An Afriat Theorem for the collective model of household consumption (2010)
Working Paper: An Afriat theorem for the collective model of household consumption (2010)
Working Paper: An Afriat theorem for the collective model of household consumption (2008)
Working Paper: An Afriat Theorem for the Collective Model of Household Consumption (2008)
Working Paper: An Afriat Theorem for the Collective Model of Household Consumption (2008)
Working Paper: An Afriat Theorem for the Collective Model of Household Consumption (2008)
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