Abstract
Following the weak axiom of revealed preference (WARP), developed by Varian, a money-metric expenditure function is derived for a CES utility function in this paper. Using the US aggregate data on consumption used by Varian, the money-metric expenditure function is estimated to calculate an efficiency index measuring the magnitude of departure from the optimum expenditures. The results are then compared to those reported by Varian for a Cobb-Douglas utility function. The findings point to a sizeable bias in the calculated efficiency index in the near-optimization analysis as determined by the choice of the functional form.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
