Testable implications of general equilibrium models: An integer programming approach

Abstract

Focusing on the testable revealed preference restrictions on the equilibrium manifold, we show that the rationalizability problem is NP-complete. Subsequently, we present a mixed integer programming (MIP) approach to characterize the testable implications of general equilibrium models. Attractively, this MIP approach naturally applies to settings with any number of observations and any number of agents. This is in contrast with existing approaches in the literature. We also demonstrate the versatility of our MIP approach in terms of dealing with alternative types of assignable information. Finally, we illustrate our methodology on a data set drawn from the US economy. In this application, an important focus is on the discriminatory power of the rationalizability tests under study.