This paper focuses on revealed preference tests of the collective model of household consumption. We start by showing that the decision problems corresponding to testing collective rationality are NP-complete. This makes the application of these tests problematic for (increasingly available) large(r)-scale data sets. We then present two approaches to overcome this negative result. First, we introduce exact algorithms based on mixed-integer programming (MIP) formulations of the collective rationality tests, which can be usefully applied to medium-sized data sets. Next, we propose simulated annealing heuristics, which allow for efficient testing of the collective model in the case of large data sets. We illustrate our methods by a number of computational experiments based on Dutch labor supply data.
- revealed preference axioms
- mixed-integer programming
- global optimization
- simulated annealing
Nobibon, F. T., Cherchye, L., Crama, Y., Demuynck, T., De Rock, B., & Spieksma, F. R. (2016). Revealed preference tests of collectively rational consumption behavior: formulations and algorithms. Operations Research, 64(6), 1197-1216. https://doi.org/10.1287/opre.2016.1527