Is Utility Transferable? A Revealed Preference Analysis

23 Pages Posted: 3 Mar 2011

See all articles by L. Cherchye

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Thomas Demuynck

Catholic University of Leuven (KUL) - Faculty of Business and Economics (FBE)

Bram De Rock

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2011

Abstract

We provide a revealed preference analysis of the transferable utility hypothesis, which is widely used in economic models. First, we establish revealed preference conditions that must be satisfied for observed group behavior to be consistent with Pareto efficiency under transferable utility. Next, we show that these conditions are easily testable by means of integer programming methods. The tests are entirely nonparametric, which makes them robust with respect to specification errors. Finally, we demonstrate the practical usefulness of our conditions by means of an application to Spanish consumption data. To the best of our knowledge, this is the first empirical test of the transferable utility hypothesis.

Keywords: transferable utility hypothesis, generalized quasi-linearity, nonparametric tests, revealed preferences

JEL Classification: C14, DO1, D11, D12, D13

Suggested Citation

Cherchye, Laurens and Demuynck, Thomas and De Rock, Bram, Is Utility Transferable? A Revealed Preference Analysis (February 1, 2011). Available at SSRN: https://ssrn.com/abstract=1773217 or http://dx.doi.org/10.2139/ssrn.1773217

Laurens Cherchye (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Thomas Demuynck

Catholic University of Leuven (KUL) - Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Bram De Rock

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

Av. F. D. Roosevelt, 50
CP 114
Brussels, B-1050
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
29
Abstract Views
541
PlumX Metrics