Revealed preference tests for consistency with weakly separable indirect utility |
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Authors: | Per Hjertstrand James L Swofford |
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Institution: | 1.Department of Economics,Lund University,Lund,Sweden;2.Department of Economics and Finance,University of South Alabama,Mobile,USA |
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Abstract: | Since Varian (Econometrica 50:945–973, 1982; Review of Economic Studies 50:90–110, 1983) made checking for consistency with
revealed preference conditions more accessible to empirical researchers; researchers have often used revealed preference procedures
to test their maintained hypotheses and narrow the scope of their demand studies. The tests developed by Varian are for the
direct utility function, while researchers estimating demand systems often find it convenient to model consumer behavior with
an indirect utility function. Unfortunately structure revealed in the direct utility function does not necessarily follow
for the indirect utility function. To remedy this problem, we set forth conditions for checking consumer data for consistency
with revealed preference conditions for minimization and weak separability of the indirect utility function. |
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