Nonparametric Tests of Collectively Rational Consumption Behavior: an Integer Programming Procedure

Laurens Cherchye, Bram De Rock,

Jeroen Sabbe and Frederic Vermeulen

December, 2007

Abstract

We present an IP-based nonparametric (revealed preference) testing procedure for rational consumption behavior in terms of general collective models, which include consumption externalities and public consumption. An empirical application to data drawn from the Russia Longitudinal Monitoring Survey (RLMS) demonstrates the practical usefulness of the procedure. Finally, we present extensions of the testing procedure to evaluate the goodness-of-fit of the collective model subject to testing, and to quantify and improve the power of the corresponding collective rationality tests.

Key words: collective consumption model, revealed preferences, nonparametric rationality tests, integer programming (IP).

JEL-classification: D11, D12, C14.