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Journal of Econometrics

Revealed Preference Tests for Weak Separability: An Integer Programming Approach

Journal Article
Cherchye, Laurens, Thomas Demuynck, Bram De Rock and Per Hjertstrand (2015). “Revealed Preference Tests for Weak Separability: An Integer Programming Approach”. Journal of Econometrics 186(1), 129–141.

Laurens Cherchye, Thomas Demuynck, Bram De Rock, Per Hjertstrand

We present the revealed preference conditions that characterize the data sets that are consistent with the maximization of a weakly separable utility function. We show that verifying these revealed preference conditions is np-hard. We also present an integer programming approach, which is particularly attractive in view of empirical analysis. We demonstrate the versatility of this integer programming approach by showing that it allows for testing homothetic separability and weak separability of the indirect utility function. We illustrate the practical usefulness of the approach by an empirical application to Spanish household consumption data.