Given a smooth increasing function, two variables are separable from a third if the marginal rate of substitution between the first two variables is independent of the third. In this case it is possible to construct an aggregator function over the first two variables that is independent of the third. This is much weaker than additive separability or additivity. We show that separability is equivalent to decentralization and that additive separability is closely related to two-stage budgeting.
KeywordsAdditivity Conditional indirect utility function Consumer expenditure Decentralization Demand theory Gorman, W. M. Gorman’s overlapping th Indirect utility function Leontief, W. Marginal rates of substitution Optimal income allocation Price aggregation Separability Social welfare function Two-stage budgeting Sono independence Strotz, R.
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