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Latent Separability: Grouping Goods without Weak Separability

Author

Listed:
  • Richard Blundell

    (Dept. of Economics, University College - Institute for Fiscal Studies)

  • Jean-Marc Robin

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, LEA - Laboratoire d'Economie Appliquée - INRA - Institut National de la Recherche Agronomique)

Abstract

This paper develops a new concept of separability with overlapping groups—latent separability. This is shown to provide a useful empirical and theoretical framework for investigating the grouping of goods and prices. It is a generalization of weak separability in which goods are allowed to enter more than one group and where the composition of groups is identified by the choice of group specific exclusive goods. Latent separability is shown to be equivalent to weak separability in latent rather than purchased goods and provides a relationship between separability and household production theory. For the popular class of linear, almost ideal and translog demand models and their generalizations, we provide a method for choosing the number of homothetic separable groups. A detailed method for exploring the composition of the separable groups is also presented. These methods are applied to a long time series of British individual household data on the consumption of twenty two nondurable and service goods.

Suggested Citation

  • Richard Blundell & Jean-Marc Robin, 2000. "Latent Separability: Grouping Goods without Weak Separability," Post-Print hal-00357752, HAL.
    • Handle: RePEc:hal:journl:hal-00357752
    DOI: 10.1111/1468-0262.00093
    as

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