Revealed Preference Tests for Weak Separability: An Integer Programming Approach

28 Pages Posted: 22 Nov 2011

See all articles by L. Cherchye

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Thomas Demuynck

Catholic University of Leuven (KUL) - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics

Bram De Rock

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

Date Written: September 1, 2011

Abstract

We focus on the revealed preference conditions that characterize the collection of finite data sets that are consistent with the maximization of a weakly separable utility function. From a theoretical perspective, we show that verifying these revealed preference conditions is a difficult problem, i.e. it is NP-complete. From a practical perspective, we present an integer programming approach that can verify the revealed preference conditions in a straightforward way, which is particularly attractive in view of empirical analysis. We demonstrate the versatility of this integer programming approach by showing that it also allows for testing homothetic separability and weak separability of the indirect utility function. We illustrate the practical usefulness of the approach by an empirical application to Spanish household consumption data.

Keywords: weak separability, revealed preference, integer programming

JEL Classification: C14, C60, D01, D10

Suggested Citation

Cherchye, Laurens and Demuynck, Thomas and De Rock, Bram, Revealed Preference Tests for Weak Separability: An Integer Programming Approach (September 1, 2011). Available at SSRN: https://ssrn.com/abstract=1963119 or http://dx.doi.org/10.2139/ssrn.1963119

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) - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
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

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