2019

Homothetic Efficiency: Theory and Applications

Reprint No. 2019:17

Author(s): Jan Heufer and Per HjertstrandYear: 2019 Title: Journal of Business & Economic Statistics Volume (No.): 37 (2) Pages: 235–247

Homothetic Efficiency: Theory and Applications Jan Heufer and Per Hjertstrand


We provide a nonparametric revealed preference approach to demand analysis based on homothetic efficiency. Homotheticity is widely assumed (often implicitly) because it is a convenient and often useful restriction. However, this assumption is rarely tested, and data rarely satisfy testable conditions. To overcome this, we provide a way to estimate homothetic efficiency of consumption choices. The method provides considerably higher discriminatory power against random behavior than the commonly used Afriat efficiency. We use experimental and household survey data to illustrate how our approach is useful for different empirical applications and can provide greater predictive success.


Reference:
Heufer, Jan and Per Hjertstrand (2019), "Homothetic Efficiency: Theory and Applications". Journal of Business & Economic Statistics 37(2), 235–247.

Per Hjertstrand

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Ph: +46 8 665 4557
per.hjertstrand@ifn.se

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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