, Volume 54, Issue 3, pp 485-500
Date: 23 Nov 2012

Private versus public consumption within groups: testing the nature of goods from aggregate data

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Abstract

We study the testability implications of public versus private consumption in collective models of group consumption. The distinguishing feature of our approach is that we start from a revealed preference characterization of collectively rational behavior. Remarkably, we find that assumptions regarding the public or private nature of specific goods do have testability implications, even if one only observes the aggregate group consumption. In fact, these testability implications apply as soon as the analysis includes three goods and four observations. This stands in sharp contrast with existing results that start from a differential characterization of collectively rational behavior.

We are grateful to the editor and the anonymous referee for the time invested in our manuscript. We also want to thank Georg Kirchsteiger, Paola Conconi and participants of the Dauphine Workshop “Recent Advances in Revealed Preference Theory: testable restrictions in markets and games” in Paris, the ECORE Summer School “Market Failure and Market Design” in Louvain-La-Neuve and the EEA-ESEM conference in Malaga for useful comments. Laurens Cherchye gratefully acknowledges financial support from the Research Fund K.U. Leuven through the grant STRT1/08/004. Bram De Rock gratefully acknowledges the European Research Council (ERC) for his Starting Grant.