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Testing for Weak Separability and Utility Maximization with Incomplete Adjustment

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  • Hjertstrand, Per
  • Swofford, James L.
  • Whitney, Gerald A.

Abstract

We develop models for weakly separable utility maximization with incomplete adjustment. By allowing for incomplete adjustment, these models account for the decision maker's inability to instantaneously adjust to optimal allocations of demanded goods and assets. This is especially important when modelling preferences for durable goods and financial/monetary assets. We propose computationally attractive nonparametric revealed preference procedures to test the models using observed data on prices and quantities. An empirical application shows that it is important to account for incomplete adjustment in consumer demand models of durable consumption goods.

Suggested Citation

  • Hjertstrand, Per & Swofford, James L. & Whitney, Gerald A., 2023. "Testing for Weak Separability and Utility Maximization with Incomplete Adjustment," Journal of Economic Dynamics and Control, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:dyncon:v:152:y:2023:i:c:s0165188923000775
    DOI: 10.1016/j.jedc.2023.104671
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    References listed on IDEAS

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    More about this item

    Keywords

    Aggregation; Incomplete Adjustment; Revealed Preference; Utility maximization;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D10 - Microeconomics - - Household Behavior - - - General

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