Interdependent Preferences, Potential Games and Household Consumption

20 Pages Posted: 16 Jan 2008

Date Written: January 15, 2008

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.

Keywords: Potential games, Externalities, Nonparametric restrictions, Revealed Preference, Household consumption, Nash-Walras equilibrium

JEL Classification: C72, C14, D11, D51

Suggested Citation

Deb, Rahul, Interdependent Preferences, Potential Games and Household Consumption (January 15, 2008). Available at SSRN: https://ssrn.com/abstract=1084346 or http://dx.doi.org/10.2139/ssrn.1084346

Rahul Deb (Contact Author)

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

HOME PAGE: http://www.economics.utoronto.ca/debrahul/

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