Econometrica: Nov 2018, Volume 86, Issue 6

Nonparametric Analysis of Random Utility Models

DOI: 10.3982/ECTA14478
p. 1883-1909

Yuichi Kitamura, Jörg Stoye

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 polyhedral cone rather than its faces. An empirical application to the U.K. Household Expenditure Survey illustrates computational feasibility of the method in demand problems with five goods.



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