Testable implications of transferable utility |
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Authors: | Pierre-Andre Chiappori |
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Affiliation: | Economics Department, Columbia University, 1009A International Affairs Building, MC 3308, 420 West 118th Street, New York, NY 10027, United States |
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Abstract: | Although the Transferable Utility (TU) assumption is widely used in micro theory, little is known about its testable consequences, and in particular how one can, from the observation of a group's demand, test whether the TU assumption is satisfied within this group. We derive a set of necessary and sufficient conditions on demand that characterize the TU context. The conditions are of two types. First, TU requires the group to behave as a single decision maker. Secondly, within the unitary setting, the representative utility generated by a TU framework must be of the Generalized Quasi-Linear (GQL) form. We derive testable properties of the demand function that fully characterize GQL utilities. These additional restrictions only involve specific prices - namely, those of the goods that are publicly consumed within the group. |
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Keywords: | C78 D11 D12 |
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