Testing the homogeneous marginal utility of income assumption

Thomas Demuynck

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Abstract

We develop a test for the hypothesis that every agent from a population of heterogeneous consumers has the same marginal utility of income function. This homogeneous marginal utility of income (HMUI) assumption is often (implicitly) used in applied demand studies because it has nice aggregation properties and facilitates welfare analysis. If the HMUI assumption holds, we can also identify the common marginal utility of income function. We apply our results using a U.S. cross sectional dataset on food consumption.

Original languageEnglish
Pages (from-to)1120-1136
Number of pages17
JournalEconometric Reviews
Volume37
Issue number10
Early online date22 Aug 2016
DOIs
Publication statusPublished - 2018

Keywords

  • Aggregation
  • marginal utility of income
  • nonparametric
  • REVEALED PREFERENCE
  • WELFARE
  • RESTRICTIONS
  • INEQUALITIES
  • CONSUMER
  • VALIDITY

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