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Nonparametric analysis of random utility models

Yuichi Kitamura () and Jörg Stoye
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Yuichi Kitamura: Institute for Fiscal Studies and Yale University

No CWP27/16, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: This paper develops and implements a nonparametric test of Random Utility Models. The motivating application is to test the null hypothesis that a sample of cross-sectional demand distributions was generated by a population of rational consumers. We test a necessary and sucient condition for this that does not rely on any restriction on unobserved heterogeneity or the number of goods. We also propose and implement a control function approach to account for endogenous expenditure. An econometric result of independent interest is a test for linear inequality constraints when these are represented as the vertices of a polyhedron rather than its faces. An empirical application to the U.K. Household Expenditure Survey illustrates computational feasibility of the method in demand problems with 5 goods.

JEL-codes: C14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-upt
Date: 2016-06-14
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Persistent link: https://EconPapers.repec.org/RePEc:ifs:cemmap:27/16

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