A Revealed Preference Test of Quasi-linear Preferences

Abstract:

We provide criteria for a set of observed choices to be generated by a quasi-linear preference relation. These criteria are valid if choice sets are compact and downward closed and do not require preferences to be convex. We show that under the added assumption that choice sets can be represented by linear budget sets, our condition also implies the existence of a quasi-linear utility representation of preferences. We implement a test of quasi-linear preferences using both experimental and panel survey data. Using experimental data, we find that while subjects are generally consistent with the generalized axiom of revealed preferences they are no closer to quasi-linearity in money than a subject choosing at random would be. Using panel survey data we find partial support for the assumption of quasi-linearity in one of the goods.

[Paper]

[Matlab codes to test Quasi-Linearity]

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