Nonnegativity constraints and intratemporal uncertainty in a multi-good life-cycle model

In the standard multi-good life-cycle consumption model (with intertemporal additive utility) the intratemporal relations between the marginal utilities of the different goods are deterministic. However, these deterministic identities will not usually be satisfied by the data. To avoid these deterministic relationships, we apply an approach which consists of introducing intratemporal uncertainty, and which is, in particular, interesting when additional nonnegativity constraints are present. We estimate some simple versions of the model with this so-called intratemporal uncertainty. The estimation results are, in general, in accordance with the theory, and most versions of the model are not rejected by Hansen and Singleton's misspecification test.