Preferences over characteristics and utility functions over commodities

Following Lancaster, preferences are defined over a set of characteristics, while commodities vectors are transformed into characteristics by a production function. We assume that both the preferences over the characteristics and the production functions are “neoclassical” and we characterize the set utility functions over the consumption space derived as the composition of preferences over characteristics and production functions. We prove that, under regularity conditions, any function can be derived by such a composition. Thus, the theories of characteristics does not impose any restrictions on derived utility functions. We thank an anonymous referee for helpful suggestions. The research of Aldo Rustichini was supported by the NSF grant NSF/SES-0136556. Paolo Siconolfi acknowledges the support of the Graduate School of Business, Columbia University.