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“It should also be noted that the objective of convergence and equal distribution, including across under-performing areas, can hinder efforts to generate growth. Contrariwise, the objective of competitiveness can exacerbate regional and social inequalities, by targeting efforts on zones of excellence where projects achieve greater returns (dynamic major cities, higher levels of general education, the most advanced projects, infrastructures with the heaviest traffic, and so on). If cohesion policy and the Lisbon Strategy come into conflict, it must be borne in mind that the former, for the moment, is founded on a rather more solid legal foundation than the latter” European Commission (2005, p. 9)Adaptation of Cohesion Policy to the Enlarged Europe and the Lisbon and Gothenburg Objectives.

Revealed preference axioms provide a simple way of testing data from consumers or firms for consistency with optimizing behavior. The resulting non-parametric tests are very attractive, since they do not require any ad hoc functional form assumptions. A weakness of such tests, however, is that they are non-stochastic. In this paper, we provide a detailed analysis of two non-parametric approaches that can be used to derive statistical tests for utility maximization, which account for random measurement errors in the observed data. These same approaches can also be used to derive tests for separability of the utility function.