Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1327: General Revealed Preference Tests of Weak Separability and Utility Maximization with Incomplete Adjustment

Per Hjertstrand (), James L. Swofford () and Gerald A. Whitney ()
Additional contact information
Per Hjertstrand: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
James L. Swofford: Department of Economics and Finance, Postal: University of South Alabama
Gerald A. Whitney: Department of Economics and Finance, Postal: University of New Orleans

Abstract: We propose more general non-parametric revealed preference tests for weak separability and utility maximization with incomplete adjustment. Hence, these procedures account for a decision maker’s inability to adjust his optimal allocation of the demanded goods and assets. Incomplete adjustment is especially important when modelling preferences of durable goods and assets. The procedures are based on a computationally attractive integer programming approach. Two empirical applications show that it is important to account for incomplete adjustment in consumer demand models of durable consumption goods and monetary assets.

Keywords: Aggregation; Incomplete Adjustment; Revealed Preference; Weak Separability

JEL-codes: C14; C60; D01; D10; E40

41 pages, March 25, 2020

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