Advanced

Testing for Rationality, Separability and Efficiency

Hjertstrand, Per LU (2008) In Lund Economic Series 148.
Abstract (Swedish)
Popular Abstract in Swedish

Denna avhandling syftar till att föreslå, utvärdera och applicera testprocedurer för rationalitet, svag separabilitet och effektivitet. Främst behandlas icke-parametriska så kallade ’revealed preference’ procedurer, vilka har fördelen att de, till skillnad från den parametriska ansatsen, inte behöver anslå någon funktionell form för nyttofunktionen. En majoritet av de testprocedurer, som finns för att testa rationalitet och svag separabilitet, är baserade på vad som i den nationalekonomiska litteraturen är kända som Afriats teorem. Signifikansen av detta teorem är att om en observerad datamängd uppfyller vissa villkor, så kan datamängden rationaliseras av en nyttofunktion som är lokalt... (More)
Popular Abstract in Swedish

Denna avhandling syftar till att föreslå, utvärdera och applicera testprocedurer för rationalitet, svag separabilitet och effektivitet. Främst behandlas icke-parametriska så kallade ’revealed preference’ procedurer, vilka har fördelen att de, till skillnad från den parametriska ansatsen, inte behöver anslå någon funktionell form för nyttofunktionen. En majoritet av de testprocedurer, som finns för att testa rationalitet och svag separabilitet, är baserade på vad som i den nationalekonomiska litteraturen är kända som Afriats teorem. Signifikansen av detta teorem är att om en observerad datamängd uppfyller vissa villkor, så kan datamängden rationaliseras av en nyttofunktion som är lokalt icke-mättad, kontinuerlig, monoton och konkav. I kapitel 2 härleds en generalisering av Afriats teorem. Här visas att teoremet egentligen testar för existensen av en semistrikt kvasikonkav nyttofunktion, till skillnad från det ursprungliga teoremet, som behandlar konkava funktioner. Främst beskrivs ’revealed preference’ villkor i syfte att testa om en finit datamängd har genererats av en lokalt icke-mättad, kontinuerlig, monoton och semistrikt kvasikonkav nyttofunktion. I avhandlingen visas hur en finit datamängd kan testas för konsistens med neoklassisk ekonomisk teori genom att lösa ett linjärt optimeringsprogram. I kapitel 3 undersöks egenskaperna hos icke-parametriska ’revealed preference’ procedurer för svag separabilitet genom Monte Carlo simuleringsexperiment. En grupp av varor är svagt separabla från alla andra varor när den marginella substitutionskvoten mellan något godtyckligt par av varor i den separabla gruppen inte beror av den konsumerade kvantiteten av varor utanför gruppen. Till stor del konstateras att den teoretiska ’biasen’ i den sekventiella testprocedur, som föreslås av Fleissig och Whitney (2003) är låg, men att proceduren tenderar att vara mycket känslig för mätfel i den underliggande data genererade processen. Vidare undersöks den teoretiskt konsistenta procedur, som föreslås av Swofford och Whitney (1994). Vi finner att denna har en empirisk ’bias’, mest troligen till följd av att proceduren är starkt beroende av effektiva icke-linjära optimeringsrutiner. I kapitel 4 undersöks separabilitetsstrukturer och efterfrågan på mat på den svenska marknaden. Den datamängd, som används består av årliga observationer från 1963-2002 insamlade från nationalräkenskaperna. I syfte att finna en lämplig separabilitetsstruktur appliceras en dataorienterad sökmetod, lik den som ursprungligen föreslagits av Jones, Elger, Edgerton och Dutkowsky (2005). Oftast används i de flesta liknande studier en initialt given separabilitetsstruktur bestående av animala produkter, dryckesprodukter och produkter från växtriket. Vi visar att detta är ett felaktigt antagande för den svenska marknaden. Vidare härleder vi en teoretisk konsistent separabilitetsstruktur och skattar efterfrågan på svenska matvaror. I kapitel 5, samförfattat med Kerstin Enflo, undersöks produktivitetstillväxt och produktivitetskonvergens i västeuropeiska länder. För detta syfte används den ickeparametriska DEA metoden. Vidare analyseras orsakerna till produktionstillväxt i västeuropeiska länder genom att dekomponera arbetsproduktivitet i effektivitetsförändring, teknologisk förändring och kapitalackumulation. Vi finner att den relativa effektivitetsrankingen är stabil även efter att skattningarna korrigerats för den teoretiska ’biasen’ som karakteriserar DEA-metoden. Dekomponeringsanalysen visar att kapitalackumulering och teknologisk förändring i genomsnitt tycks ha lika stor betydelse för tillväxt i arbetsproduktivitet. Analysen visar även att förändringar i effektivitet har bidragit negativt till arbetsproduktivitet. (Less)
Abstract
This thesis aims to propose, evaluate and apply test procedures for rationality, weak separability and efficiency. In particular, it focuses on nonparametric revealed preference procedures. This approach has the advantage of not having to stipulate any functional form for the utility function, unlike the parametric approach which relies on finding a suitable functional form for the utility function. Many nonparametric approaches to testing rationality and weak separability are based on what is referred to in the literature as Afriat’s theorem. The significance of this theorem is that if the observed data satisfy some testable conditions, then the data may be rationalized by a well-behaved utility function that possesses such properties as... (More)
This thesis aims to propose, evaluate and apply test procedures for rationality, weak separability and efficiency. In particular, it focuses on nonparametric revealed preference procedures. This approach has the advantage of not having to stipulate any functional form for the utility function, unlike the parametric approach which relies on finding a suitable functional form for the utility function. Many nonparametric approaches to testing rationality and weak separability are based on what is referred to in the literature as Afriat’s theorem. The significance of this theorem is that if the observed data satisfy some testable conditions, then the data may be rationalized by a well-behaved utility function that possesses such properties as being non-satiated, continuous, monotonic and concave. Chapter 2 provides a generalization of Afriat's theorem. It is shown that the concavity condition in the theorem may be relaxed to the weaker assumption of semistrict quasi-concavity. In particular, revealed preference conditions are used to check whether a finite data set can be generated by a non-satiated, continuous, monotone and semistrict quasi-concave utility function. In addition, it is shown that a data set can be checked for consistency with economic theory by solving a simple linear programming problem. Chapter 3 investigates the properties of nonparametric revealed preference tests for weak separability by means of Monte Carlo experiments. A block of goods is said to be weakly separable from all other goods when the marginal rate of substitution between any pair of goods in the separable block does not depend on the quantities consumed of any good that is not in the block. A main finding of this thesis is that the bias of the sequential test proposed by Fleissig and Whitney (2003) is low, but that the performance of the test deteriorates substantially when measurement errors are added to the data. The theoretically unbiased test by Swofford and Whitney (1994) is found to suffer from an empirical bias, most probably because the test is heavily dependent on efficient nonlinear optimization routines. Chapter 4, using a data set that comprises yearly observations from 1963-2002 examines separability structures and the demand for food in the Swedish food market. A data-orientated search method based on the multistep test procedure proposed by Jones, Elger, Edgerton and Dutkowsky (2005) is applied to find an appropriate structuring of goods in the demand analysis. Most agricultural studies assume that animalia products, beverage products and vegetabilia products constitute separable groupings. It is shown that this is a misleading assumption when analysing Swedish food data. Chapter 5, co-authored with Kerstin Enflo, addresses the issue of Western European regional productivity growth and convergence by means of data envelopment analysis (DEA), decomposing labor productivity into efficiency change, technical change and capital accumulation. A main finding is that the relative ranking of efficiency scores obtained using DEA is stable with regard to bias-corrections. The decomposition shows that, on average, capital accumulation and technological change have played roughly equally large roles, whereas efficiency changes have contributed negatively. (Less)
Please use this url to cite or link to this publication:
author
supervisor
opponent
  • Professor Mullineux, Andrew, University of Birmingham
organization
publishing date
type
Thesis
publication status
published
subject
keywords
Revealed preference, Regional convergence, Rationality, Nonparametric, NONPAR test, LP test, GARP, Efficiency, Data Envelopment Analysis (DEA), Afriat’s Theorem, Bootstrap, Swofford and Whitney test, Weak separability
in
Lund Economic Series
volume
148
pages
125 pages
publisher
Department of Economics, Lund Universtiy
defense location
Holger Crafoord Ekonomicentrum EC3: 210
defense date
2008-10-31 09:15
ISSN
0460-0029
language
English
LU publication?
yes
id
b592e669-67d7-4883-bd58-440d362e764c (old id 1242530)
date added to LUP
2008-09-30 14:43:15
date last changed
2016-09-19 08:44:46
@phdthesis{b592e669-67d7-4883-bd58-440d362e764c,
  abstract     = {This thesis aims to propose, evaluate and apply test procedures for rationality, weak separability and efficiency. In particular, it focuses on nonparametric revealed preference procedures. This approach has the advantage of not having to stipulate any functional form for the utility function, unlike the parametric approach which relies on finding a suitable functional form for the utility function. Many nonparametric approaches to testing rationality and weak separability are based on what is referred to in the literature as Afriat’s theorem. The significance of this theorem is that if the observed data satisfy some testable conditions, then the data may be rationalized by a well-behaved utility function that possesses such properties as being non-satiated, continuous, monotonic and concave. Chapter 2 provides a generalization of Afriat's theorem. It is shown that the concavity condition in the theorem may be relaxed to the weaker assumption of semistrict quasi-concavity. In particular, revealed preference conditions are used to check whether a finite data set can be generated by a non-satiated, continuous, monotone and semistrict quasi-concave utility function. In addition, it is shown that a data set can be checked for consistency with economic theory by solving a simple linear programming problem. Chapter 3 investigates the properties of nonparametric revealed preference tests for weak separability by means of Monte Carlo experiments. A block of goods is said to be weakly separable from all other goods when the marginal rate of substitution between any pair of goods in the separable block does not depend on the quantities consumed of any good that is not in the block. A main finding of this thesis is that the bias of the sequential test proposed by Fleissig and Whitney (2003) is low, but that the performance of the test deteriorates substantially when measurement errors are added to the data. The theoretically unbiased test by Swofford and Whitney (1994) is found to suffer from an empirical bias, most probably because the test is heavily dependent on efficient nonlinear optimization routines. Chapter 4, using a data set that comprises yearly observations from 1963-2002 examines separability structures and the demand for food in the Swedish food market. A data-orientated search method based on the multistep test procedure proposed by Jones, Elger, Edgerton and Dutkowsky (2005) is applied to find an appropriate structuring of goods in the demand analysis. Most agricultural studies assume that animalia products, beverage products and vegetabilia products constitute separable groupings. It is shown that this is a misleading assumption when analysing Swedish food data. Chapter 5, co-authored with Kerstin Enflo, addresses the issue of Western European regional productivity growth and convergence by means of data envelopment analysis (DEA), decomposing labor productivity into efficiency change, technical change and capital accumulation. A main finding is that the relative ranking of efficiency scores obtained using DEA is stable with regard to bias-corrections. The decomposition shows that, on average, capital accumulation and technological change have played roughly equally large roles, whereas efficiency changes have contributed negatively.},
  author       = {Hjertstrand, Per},
  issn         = {0460-0029},
  keyword      = {Revealed preference,Regional convergence,Rationality,Nonparametric,NONPAR test,LP test,GARP,Efficiency,Data Envelopment Analysis (DEA),Afriat’s Theorem,Bootstrap,Swofford and Whitney test,Weak separability},
  language     = {eng},
  pages        = {125},
  publisher    = {Department of Economics, Lund Universtiy},
  school       = {Lund University},
  series       = {Lund Economic Series},
  title        = {Testing for Rationality, Separability and Efficiency},
  volume       = {148},
  year         = {2008},
}