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Testing revealed preferences for homotheticity with two-good experiments

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  • Jan Heufer

Abstract

It is shown that for two dimensional commodity spaces any homothetic utility function that rationalizes each pair of observations in a set of consumption data also rationalizes the entire set. The result is used to provide a simplified nonparametric test for homotheticity of demand and a measure for homothetic efficiency. The article thus provides a useful tool to screen data for severe violations of homotheticity before estimating parameters of homothetic utility functions. The new test and measure are applied to previously published data. Copyright Economic Science Association 2013

Suggested Citation

  • Jan Heufer, 2013. "Testing revealed preferences for homotheticity with two-good experiments," Experimental Economics, Springer;Economic Science Association, vol. 16(1), pages 114-124, March.
    • Handle: RePEc:kap:expeco:v:16:y:2013:i:1:p:114-124
    DOI: 10.1007/s10683-012-9330-z
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Heufer, Jan & Hjertstrand, Per, 2019. "Homothetic preferences revealed," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 602-614.
    2. Mikhail Freer & César Martinelli, 2023. "An algebraic approach to revealed preference," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 717-742, April.
    3. Jan (J.P.M.) Heufer & Per Hjertstrand, 2017. "Homothetic Preferences Revealed," Tinbergen Institute Discussion Papers 17-103/I, Tinbergen Institute.
    4. Heufer, Jan & Hjertstrand, Per, 2015. "Consistent subsets: Computationally feasible methods to compute the Houtman–Maks-index," Economics Letters, Elsevier, vol. 128(C), pages 87-89.
    5. Mikhail Freer & Marco Castillo, 2021. "A General Revealed Preference Test for Quasilinear Preferences: Theory and Experiments," Papers 2111.01248, arXiv.org, revised Dec 2022.
    6. Daniel R. Burghart, 2020. "The two faces of independence: betweenness and homotheticity," Theory and Decision, Springer, vol. 88(4), pages 567-593, May.
    7. Jan (J.P.M.) Heufer & Jason Shachat & Yan Xu, 2018. "Measuring tastes for equity and aggregate wealth behind the veil of ignorance," Tinbergen Institute Discussion Papers 18-087/I, Tinbergen Institute.
    8. Jan Heufer, 2014. "Generating Random Optimising Choices," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 295-305, October.

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    More about this item

    Keywords

    Homothetic efficiency; Homothetic preferences; Laboratory experiments; Nonparametric tests; Revealed preference; C14; C91; D11; D12;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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