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Towards a More General Approach to Testing the Time Additivity Hypothesis, Discussion Paper No 98

Wong, Gary (2001) Towards a More General Approach to Testing the Time Additivity Hypothesis, Discussion Paper No 98. [Working Paper] (Unpublished)

Abstract

A new procedure is proposed for re-examining the assumption of additivity of preferences over time which, although untenable, is usually maintained in intertemporal analyses of consumption and labour supply. The method is an extension of a famous work by Browning (1991). However, it is more general in permitting the estimation of Frisch demands, which are explicit in an unobservable variable (price of utility), but may lack a closed form representation in terms of observable variables such as prices and total outlay. It also makes an extensive use of duality theory to solve the endogeneity problem encountered in Browning's study. Applying this method with an appropriate estimator to the Australian disaggregate data, we find that the intertemporal additivity hypothesis is decisively rejected, which is consistent with Browning's conclusion. Results also indicate that the effects of lagged and future prices in determining current consumption decisions are insubstantial.

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ID Code: 565
Item Type: Working Paper
Additional URLs:
Keywords: Frisch Demands, The SNAP Structure, Intertemporal Additivity Hypothesis, Numerical Inversion Method
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Financial Economics (140207)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2001 (Please consult author)
Deposited On: 11 Nov 2004
Last Modified: 02 Feb 2012 19:44

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