Revealed Preference Tests of Collectively Rational Consumption Behavior: Formulations and Algorithms

38 Pages Posted: 22 Jan 2014

See all articles by Fabrice Nobibon Talla

Fabrice Nobibon Talla

FedEx Express Europe

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Yves Crama

University of Liege - HEC Management School

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)

Frits Spieksma

Catholic University of Leuven (KUL)

Date Written: September 1, 2013

Abstract

This paper focuses on revealed preference tests of the collective model of household consumption. We start by showing that the decision problems corresponding to testing collective rationality are NP-complete. This makes the application of these tests problematic for (increasingly available) large(r) scale data sets. We then present two approaches to overcome this negative result. First, we introduce exact algorithms based on mixed-integer programming (MIP) formulations of the collective rationality tests, which can be usefully applied to medium sized data sets. Next, we propose simulated annealing heuristics, which allow for efficient testing of the collective model in the case of large data sets. We illustrate our methods by a number of computational experiments based on Dutch labor supply data.

Keywords: revealed preference axioms, rationality, mixed-integer programming, global optimization, simulated annealing

Suggested Citation

Talla, Fabrice Nobibon and Cherchye, Laurens and Crama, Yves and Demuynck, Thomas and De Rock, Bram and Spieksma, Frits, Revealed Preference Tests of Collectively Rational Consumption Behavior: Formulations and Algorithms (September 1, 2013). Available at SSRN: https://ssrn.com/abstract=2381956 or http://dx.doi.org/10.2139/ssrn.2381956

Fabrice Nobibon Talla (Contact Author)

FedEx Express Europe ( email )

Middle East, Africa
India

Laurens Cherchye

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Yves Crama

University of Liege - HEC Management School ( email )

Boulevard du Rectorat 7 (B31)
LIEGE, Liege 4000
Belgium

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

Frits Spieksma

Catholic University of Leuven (KUL) ( email )

Leuven, B-3000
Belgium

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