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Implications of Pareto Eciency for Two-Agent (Household) Choice

Echenique, Federico and Ivanov, Lozan (2009) Implications of Pareto Eciency for Two-Agent (Household) Choice. Social Science Working Paper, 1308. California Institute of Technology , Pasadena, CA. http://resolver.caltech.edu/CaltechAUTHORS:20101008-103311343

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Abstract

We study when two-member household choice behavior is compatible with Pareto optimality. We ask when an external observer of household choices, who does not know the individuals' preferences, can rationalize the choices as being Pareto-optimal. Our main contribution is to reduce the problem of rationalization to a graph-coloring problem. As a result, we obtain simple tests for Pareto optimal choice behavior. In addition to the tests, and using our graph-theoretic representation, we show that Pareto rationalization is equivalent to a system of quadratic equations being solvable.


Item Type:Report or Paper (Working Paper)
Additional Information:Author's copy: Date: September 10, 2010. We thank Leeat Yariv for comments on an earlier draft. We are also very grateful to an anonymous referee for his/her thoughtful comments. Our research was supported by the Lee Center at Caltech. We thank Leeat Yariv for comments on an earlier draft. Our research was supported by the Lee Center at Caltech.
Group:Social Science Working Papers
Funders:
Funding AgencyGrant Number
Lee Center at CaltechUNSPECIFIED
Subject Keywords:Revealed preference; Pareto optimality; Testable implications
Classification Code:JEL classication numbers: D10,D13
Record Number:CaltechAUTHORS:20101008-103311343
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20101008-103311343
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:20353
Collection:CaltechAUTHORS
Deposited By: Shirley Johnson
Deposited On:08 Oct 2010 17:40
Last Modified:26 Dec 2012 12:30

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