Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149773
Authors: 
Kitamura, Yuichi
Stoye, Jörg
Year of Publication: 
2016
Series/Report no.: 
cemmap working paper, Centre for Microdata Methods and Practice CWP27/16
Abstract: 
This paper develops and implements a nonparametric test of Random Utility Models. The motivating application is to test the null hypothesis that a sample of cross-sectional demand distributions was generated by a population of rational consumers. We test a necessary and sufficient condition for this that does not rely on any restriction on unobserved heterogeneity or the number of goods. We also propose and implement a control function approach to account for endogenous expenditure. An econometric result of independent interest is a test for linear inequality constraints when these are represented as the vertices of a polyhedron rather than its faces. An empirical application to the U.K. Household Expenditure Survey illustrates computational feasibility of the method in demand problems with 5 goods.
Subjects: 
Stochastic Rationality
JEL: 
C14
Document Type: 
Working Paper

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