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A Monte Carlo Study of the Necessary and Sufficient Conditions for Weak Separability

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Abstract

Weak separability is an important concept in many fields of economic theory. This paper uses Monte Carlo experiments to investigate the performance of newly developed nonparametric revealed preference tests for weak separability. A main finding is that the bias of the sequentially implemented test for weak separability proposed by Fleissig and Whitney (A New PC-Based Test for Varian’s Weak Separability Conditions, Journal of Business and Economic Statistics 21, 133-143, 2003) is low. The theoretically unbiased Swofford and Whitney test (A revealed preference test for weakly separable utility maximization with incomplete adjustment, Journal of Econometrics 60, 235-249, 1994) is found to perform better than all sequentially implemented test procedures, but is found to suffer from an empirical bias, most likely because of the complexity in executing the test procedure. As a further source of information, we also perform sensitivity analyses on the nonparametric revealed preference tests. It is found that the Fleissig and Whitney test seems to be sensitive to measurement.

Suggested Citation

  • Hjertstrand, Per, 2008. "A Monte Carlo Study of the Necessary and Sufficient Conditions for Weak Separability," Working Papers 2008:10, Lund University, Department of Economics, revised 11 Sep 2008.
    • Handle: RePEc:hhs:lunewp:2008_010
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    Cited by:

    1. Per Hjertstrand & James L. Swofford & Gerald A. Whitney, 2016. "Mixed Integer Programming Revealed Preference Tests of Utility Maximization and Weak Separability of Consumption, Leisure, and Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1547-1561, October.
    2. Sato, Hideyasu & 佐藤, 秀保, 2020. "Do Large-scale Point-of-sale Data Satisfy the Generalized Axiom of Revealed Preference in Aggregation Using Representative Price Indexes?: A Case Involving Processed Food and Beverages," RCESR Discussion Paper Series DP19-2, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    3. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram & Hjertstrand, Per, 2015. "Revealed preference tests for weak separability: An integer programming approach," Journal of Econometrics, Elsevier, vol. 186(1), pages 129-141.
    4. Demuynck, Thomas & Hjertstrand, Per, 2019. "Samuelson's Approach to Revealed Preference Theory: Some Recent Advances," Working Paper Series 1274, Research Institute of Industrial Economics.
    5. Hjertstrand, Per & Swofford, James L. & Whitney, Gerald A., 2019. "Index Numbers and Revealed Preference Rankings," Working Paper Series 1308, Research Institute of Industrial Economics.

    More about this item

    Keywords

    GARP; LP test; Monte Carlo simulations; NONPAR; Weak separability; Swofford and Whitney test;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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