A General Revealed Preference Test for Quasilinear Preferences: Theory and Experiments

TL;DR

This paper develops a generalized revealed preference test for quasilinear preferences applicable to complex economic contexts and demonstrates its empirical relevance through laboratory experiments involving nonlinear wages.

Contribution

It introduces a new test for quasilinear preferences that works with nonlinear budget sets and non-convex preferences, validated by experiments.

Findings

Support for convex or quasilinear preferences in experiments

Weak support for simultaneous convexity and quasilinearity

Empirical relevance of the new test

Abstract

We provide a generalized revealed preference test for quasilinear preferences. The test applies to nonlinear budget sets and non-convex preferences as those found in taxation and nonlinear pricing contexts. We study the prevalence of quasilinear preferences in a laboratory real-effort task experiment with nonlinear wages. The experiment demonstrates the empirical relevance of our test. We find support for either convex (non-separable) preferences or quasilinear preferences but weak support for the hypothesis of both quasilinear and convex preferences.