The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • W. M. Gorman
  • G. D. Myles
Reference work entry


If Eve had not insisted that ‘an apple is an apple is an apple’, Adam would probably have brought down the wrath of Jehovah himself by characterizing things, unsurprisingly, by their characteristics, thus bringing man-made order into chaos. There remains the problem: what characteristics? Here a little mathematics is useful. Suppose goods Y are sold only in bundles X, and that there are aij units of Yj in Xi. The total quantity of it will be
$$ {y}_j\sum_i{a}_{ij}{x}_i, $$
and the total value of a bundle Xi
$$ {p}_i\sum_j{a}_{ij}{q}_j, $$
in an obvious notation, so that expenditure
$$ \sum_i{p}_i{x}_i=\sum_{ij}{a}_{ij}{q}_i{x}_i=\sum_j{q}_j{y}_j, $$
for all q, x, and expenditure, m, is invariant, a fact brought to the attention of young economists at large by Samuelson when he published his Foundations just after the war. That immediately suggested that we might instead consider the X as goods, thought of as bundles of characteristics Y. Were we to try \( {y}_j={f}^j(x),{p}_i={g}^i(q) \), instead of Eqs. 1 and 2, the notion that total expenditure should be invariant would yield \( m=\sum {g}^i(q){x}_i\equiv \sum {q}_j{f}^j(x) \), so that \( {\partial}^2m/\partial {x}_i\partial {q}_j={f}_i^j(x)={g}_j^i(q)={a}_{ij} \) say, the subscripts denoting differentiation, and hence back to the linear characteristics model (Eqs. 1 and 2), which had already been used extensively, if implicitly, by Rowntree when studying working-class budgets in York before and after World War I, by Miss Schulz in her monthly ‘human needs’ budgets during World War II, by numerous nutritionists, and finally by Stigler, in a paper cited in Koopmans’ Cowles Commission monograph on activity analysis in 1951 as a precursor of linear programming, a topic very fashionable among young economists at the time.
This is a preview of subscription content, log in to check access.


  1. Caplin, P., and Nalebuff, B. 1986. Multidimensional product differentiation and price competition. Oxford Economic Papers 38.Google Scholar
  2. Cubbin, J. 1975. Quality change and pricing behaviour in the United Kingdom car industry 1956–68. Economica 42: 43–58.CrossRefGoogle Scholar
  3. Domencich, T.A., and D. McFadden. 1975. Urban travel demand. Amsterdam: North Holland.Google Scholar
  4. Gorman, W.M. 1956. A possible procedure for analysing quality differentials in the egg market. Journal paper No. 3129, Iowa Agricultural Experiment Station, and Review of Economic Studies (1980) 47: 843–856.Google Scholar
  5. Hausman, J., and D. Wise. 1978. A conditional probit model for qualitative choice: Discrete decisions recognising interdependence and heterogeneous preferences. Econometrica 46: 403–426.CrossRefGoogle Scholar
  6. Hotelling, H. 1933. Analysis of a complex of statistical variables into principal components. Journal of Educational Psychology 24: 417–444. and 498–520.CrossRefGoogle Scholar
  7. Houthakker, H.S. 1952. Compensated changes in quantities and qualities consumed. Review of Economic Studies 19: 154–184.CrossRefGoogle Scholar
  8. Ironmonger, D.S. 1972. New commodities and consumer behaviour. Cambridge: Cambridge University Press.Google Scholar
  9. Koopmans, T.C. (ed.). 1951. Activity analysis of production and allocation. New York: Wiley.Google Scholar
  10. Lancaster, K.J. 1966. A new approach to consumer theory. Journal of Political Economy 74: 132–157.CrossRefGoogle Scholar
  11. Luce, R.D. 1959. Individual choice behaviour. New York: Wiley.Google Scholar
  12. McFadden, D. 1981. Econometric models of probabilistic choice. In Structural analysis of discrete data with econometric applications, ed. C.F. Manski and D. McFadden. Cambridge, MA: MIT Press.Google Scholar
  13. Quandt, R. 1956. Probabilistic theory of consumer behaviour. Quarterly Journal of Economics 70: 507–536.CrossRefGoogle Scholar
  14. Rowntree, P.S. 1918. The human needs of labour. London: Nelson.Google Scholar
  15. Samuelson, P.A. 1947. Foundations of economic analysis. Cambridge, MA: Harvard University Press.Google Scholar
  16. Schultz, T. 1943–59. Bulletin of the Oxford University Institute of Statistics, various issues.Google Scholar
  17. Stigler, G.J. 1945. The cost of subsistence. Journal of Farm Economics 27: 303–314.CrossRefGoogle Scholar
  18. Stone, J.R.N. 1947. On the interdependence of blocks of transactions. Journal of the Royal Statistical Society (Supplement) 9: 1–45.CrossRefGoogle Scholar
  19. Winston, C. 1981. A multinational probit prediction of the demand for domestic ocean container services. Journal of Transport Economics and Policy 15: 23–42.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • W. M. Gorman
    • 1
  • G. D. Myles
    • 1
  1. 1.