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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 restrict 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.
Authors
Yuichi Kitamura
Cornell University
Working Paper details
- DOI
- 10.1920/wp.cem.2017.5617
- Publisher
- The IFS
Suggested citation
Kitamura, Y and Stoye, J. (2017). Nonparametric analysis of random utility models. London: The IFS. Available at: https://ifs.org.uk/publications/nonparametric-analysis-random-utility-models (accessed: 26 April 2024).
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