Non-parametric test of Single-crossing indifference curves

Thomas Demuynck (ULB)

Indifference curves are single crossing if one individual has more intense preferences for a certain good compared to the other. We show that in a consumption setting, single crossing indifference curves are equivalent to a behavioural condition, called choice dominance, which ranks the individuals based on their consumption of a certain good. We then provide a classical empirical revealed preference condition, called XARP, that characterizes the testable implications of choice dominance on finite choice data set. We also incorporate choice dominance into a household framework to obtain testable restrictions on the change in household demand after an increase in the bargaining power for one of the household members. We illustrate our findings using an experimental dataset and a budget survey from a conditional cash transfer programme.