1999•Journal of Business and Economic StatisticsRequires access

Preference Heterogeneity and the Rank of Demand Systems

Panayiota Lyssiotou, Panos Pashardes, Thanasis Stengos

Abstract

This article examines the effect of preference heterogeneity on nonparametric and parametric tests of the rank of demand systems. Using samples of households drawn from the U.K. Family Expenditure Survey, we find that preference heterogeneity increases the rank of demand systems. When the effects of household characteristics on demand are removed by semiparametric techniques, a rank-3 demand system appears to be an adequate empirical specification for all samples.

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Key concepts: Nonparametric statistics, Rank (graph theory), Preference, Revealed preference, Economics, Econometrics, Semiparametric model, Parametric statistics