DP12667 Integrability and Generalized Separability

Author(s): Thibault Fally
Publication Date: January 2018
Date Revised: October 2018
Keyword(s): integrability, non-homothetic preferences, Recoverability, Separable demand, Single aggregator
JEL(s): D11, D40, L13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12667

This paper examines demand systems where the demand for a good depends only on its own price, consumer income, and a single aggregator synthesizing information on all other prices. This generalizes directly-separable preferences where the Lagrange multiplier provides such an aggregator. As indicated by Gorman (1972), symmetry of the Slutsky substitution terms implies that such demand can take only one of two simple forms. Conversely, here we show that only weak conditions ensure that such demand systems are integrable, i.e. can be derived from the maximization of a well-behaved utility function. This paper further studies useful properties and applications of these demand systems.