Nonparametric Tests of Collectively Rational Consumption Behavior: An Integer Programming Procedure

Cherchye, L.; De Rock, Bram; Sabbe, Jeroen; Vermeulen, Frederic

doi:10.2139/ssrn.1084818

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Nonparametric Tests of Collectively Rational Consumption Behavior: An Integer Programming Procedure

CentER Discussion Paper No. 2008-02

31 Pages Posted: 17 Jan 2008

See all articles by L. Cherchye

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Bram De Rock

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Jeroen Sabbe

K.U. Leuven - Faculty of Business and Economics; K.U. Leuven Campus Kortrijk - Subfaculty of Business and Economics

Frederic Vermeulen

Tilburg University - CentER; IZA Institute of Labor Economics

Date Written: January 2008

Abstract

We present an IP-based nonparametric (revealed preference) testing procedure for rational consumption behavior in terms of general collective models, which include consumption externalities and public consumption. An empirical application to data drawn from the Russia Longitudinal Monitoring Survey (RLMS) demonstrates the practical usefulness of the procedure. Finally, we present extensions of the testing procedure to evaluate the goodness of fit of the collective model subject to testing, and to quantify and improve the power of the corresponding collective rationality tests.

Keywords: collective consumption model, revealed preferences, nonparametric rationality tests, integer programming (IP)

JEL Classification: D11, D12, C14

Suggested Citation: Suggested Citation

Cherchye, Laurens and De Rock, Bram and Sabbe, Jeroen and Sabbe, Jeroen and Vermeulen, Frederic, Nonparametric Tests of Collectively Rational Consumption Behavior: An Integer Programming Procedure (January 2008). CentER Discussion Paper No. 2008-02 , Available at SSRN: https://ssrn.com/abstract=1084818 or http://dx.doi.org/10.2139/ssrn.1084818