The Revealed Preference Approach to Collective Consumption Behavior: Testing, Recovery, and Welfare Analysis (Replaced by DP 2009-68)

L.J.H. Cherchye, B. de Rock, F.M.P. Vermeulen

Research output: Working paperDiscussion paperOther research output

Abstract

We extend the nonparametric 'revealed preference' methodology for analyzing collective consumption behavior (with consumption externalities and public consumption), to ren- der it useful for empirical applications that deal with welfare-related questions. First, we provide a nonparametric necessary and su¢ cient condition for collectively rational group behavior that incorporates the possibility of assignable quantity information. This charac- terizes collective rationality in terms of feasible personalized prices, personalized quantities and income shares (representing the underlying sharing rule). Subsequently, we present nonparametric testing tools for data consistency with special cases of the collective model, which impose specific structure on the preferences of the group members (in terms of con- sumption externalities and public consumption); and we show that these testing tools in turn allow for nonparametrically recovering (bounds on) feasible personalized prices, per- sonalized quantities and income shares that underlie observed (collectively rational) group behavior. In addition, we present formally similar testing and recovery tools for the general collective consumption model, which imposes minimal a priori structure. Interestingly, the proposed testing and recovery methodology can be implemented through integer program- ming (IP and MILP), which is attractive for practical applications. Finally, while we argue that assignable quantity information generally entails more powerful recovery results, we also demonstrate that precise nonparametric recovery (i.e. tight bounds) can be obtained even if no assignable quantity information is available.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages38
Volume2007-73
Publication statusPublished - 2007

Publication series

NameCentER Discussion Paper
Volume2007-73

Fingerprint

Consumption behavior
Revealed preference
Welfare analysis
Testing
Consumption externalities
Methodology
Income
Group behavior
Public consumption
Rationality
Sharing rule
Collective model
Nonparametric testing
Integer programming
Mixed integer linear programming

Keywords

  • collective model
  • revealed preferences
  • consumption
  • testing
  • recovery
  • welfare analysis
  • integer programming.

Cite this

Cherchye, L. J. H., de Rock, B., & Vermeulen, F. M. P. (2007). The Revealed Preference Approach to Collective Consumption Behavior: Testing, Recovery, and Welfare Analysis (Replaced by DP 2009-68). (CentER Discussion Paper; Vol. 2007-73). Tilburg: Econometrics.
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Cherchye, LJH, de Rock, B & Vermeulen, FMP 2007 'The Revealed Preference Approach to Collective Consumption Behavior: Testing, Recovery, and Welfare Analysis (Replaced by DP 2009-68)' CentER Discussion Paper, vol. 2007-73, Econometrics, Tilburg.

The Revealed Preference Approach to Collective Consumption Behavior : Testing, Recovery, and Welfare Analysis (Replaced by DP 2009-68). / Cherchye, L.J.H.; de Rock, B.; Vermeulen, F.M.P.

Tilburg : Econometrics, 2007. (CentER Discussion Paper; Vol. 2007-73).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - The Revealed Preference Approach to Collective Consumption Behavior

T2 - Testing, Recovery, and Welfare Analysis (Replaced by DP 2009-68)

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AB - We extend the nonparametric 'revealed preference' methodology for analyzing collective consumption behavior (with consumption externalities and public consumption), to ren- der it useful for empirical applications that deal with welfare-related questions. First, we provide a nonparametric necessary and su¢ cient condition for collectively rational group behavior that incorporates the possibility of assignable quantity information. This charac- terizes collective rationality in terms of feasible personalized prices, personalized quantities and income shares (representing the underlying sharing rule). Subsequently, we present nonparametric testing tools for data consistency with special cases of the collective model, which impose specific structure on the preferences of the group members (in terms of con- sumption externalities and public consumption); and we show that these testing tools in turn allow for nonparametrically recovering (bounds on) feasible personalized prices, per- sonalized quantities and income shares that underlie observed (collectively rational) group behavior. In addition, we present formally similar testing and recovery tools for the general collective consumption model, which imposes minimal a priori structure. Interestingly, the proposed testing and recovery methodology can be implemented through integer program- ming (IP and MILP), which is attractive for practical applications. Finally, while we argue that assignable quantity information generally entails more powerful recovery results, we also demonstrate that precise nonparametric recovery (i.e. tight bounds) can be obtained even if no assignable quantity information is available.

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KW - recovery

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