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A Household-Based, Nonparametric Test of Demand Theory

Melissa Famulari
The Review of Economics and Statistics
Vol. 77, No. 2 (May, 1995), pp. 372-382
Published by: The MIT Press
DOI: 10.2307/2109872
Stable URL: http://www.jstor.org/stable/2109872
Page Count: 11
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
A Household-Based, Nonparametric Test of Demand Theory
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Abstract

A nonparametric test of demand theory, determining the consistency of price-expenditure data with the Generalized Axiom of Revealed Preference (GARP), is applied to household microeconomic data for the first time. The fraction of consumption bundle comparisons that violate GARP is proposed as a summary statistic to indicate the consistency of a data set with revealed preference axioms. This violation rate is calculated among consumption pairs with similar expenditures to increase the power of the test. The results suggest that similar households' consumption choices and budget constraints are generally consistent with the joint hypotheses of optimizing behavior and common preferences.

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