Interdependent Preferences, Potential Games and Household Consumption

Deb, Rahul (2008): Interdependent Preferences, Potential Games and Household Consumption.

Abstract

This paper presents a nonparametric model of interdependent preferences, where an individual’s consumption may be an externality on the preferences of other consumers. We assume that individual price consumption data is observed for all consumers and prove that the general model imposes few restrictions on the observed data, where the consistency requirement is Nash rationalizability. We motivate potential games as an important sub class of games where the family of concave potential games is refutable and imposes stronger restrictions on observed data. As an application of this model, we discuss inter-household consumption data. Finally, we use this framework to extend the analysis of Brown and Matzkin (1996) on refutable pure exchange economies to pure exchange economies with externalities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Potential games, Externalities, Nonparametric restrictions, Revealed Preference, Household consumption, Nash-Walras equilibrium
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games