Nonparametric Testable Restrictions of Household Behavior

Abstract

This paper uses semialgebraic theory to derive nonparametric testable restrictions of Pareto‐efficient bargaining behavior within a household. These tests are analogous in form to Samuelson's Weak Axiom of Revealed Preference (WARP) and are defined over data on household‐level consumption and individual labor supplies. Thus, without observing intrahousehold division of consumption, we can nonparametrically test whether there exist nonsatiated utility functions such that household behavior is Pareto efficient. I apply these tests to data from the National Longitudinal Surveys on U.S. households and find that preferences exist that are consistent with Pareto efficiency for each household in the data set.

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