A HOUSEHOLD-BASED, NONPARAMETRIC TEST OF DEMAND THEORY

A nonparametric test of demand theory, determining the consistency of price-expenditure data with the Generalized Axiom of Revealed Preferen ce (GARP), is applied to household microeconomic data for the first ti me. The fraction of consumption bundle comparisons that violate GARP i s proposed as a summary statistic to indicate the consistency of a dat a set with revealed preference axioms. This violation rate is calculat ed among consumption pairs with similar expenditures to increase the p ower of the test. The results suggest that similar household's consump tion choices and budget constraints are generally consistent with the joint hypotheses of optimizing behavior and common preferences.