Nonparametric Tests of Utility Maximization and Weak Separability for Consumption, Leisure and Money

Abstract

Some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer's utility function. This paper contains results from nonparametric tests of these assumptions about consumer behavior. The authors find that quarterly per capita data on consumption goods, le isure, and monetary assets are consistent with utility maximization. Further, consumption goods and leisure meet necessary and sufficient conditions for weak separability. Additionally, one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability. They also test and find no evidence of homothetic prefe rences. Copyright 1987 by MIT Press.