Revealed homothetic preference and technology (Q1590375)

Homothetic preferences are elementary notions in economics. They are important in both theory and applications. The significance of assuming such preferences, however, cannot be understood unless the demand behaviour they generate can be characterized. The authors of this paper provide a complete such characterization. Using the revealed preference approach, the authors introduce a new axiom that completely characterizes the consumer demand behaviour generated by homothetic preferences. This axiom provides also a unified basis for sharpening several previous theorems on homothetic rationalizations. The proposed approach is also useful for the production analysis, since it allows for new characterizations of the input demand behaviour that is generated by homothetic production functions.