1. INTRODUCTION

This paper introduces the idea of a consumer who has a time varying Lancasterian matrix of characteristics imbedded in an intertemporal Stone-Geary utility function. The thrust of the paper is theoretical, its main aim being the generalisation of the theoretical contributions of Dixon and Lluch (1977). The main contribution in Dixon and Lluch (1977) is that DELES, a system of equations is proposed which describe the consumer’s planned and actual expenditure paths for durables. In order to derive these equations they have a consumer maximising an inter-temporal Klein-Rubin utility function defined on the stocks of durables, subject to a budget integral constraint and a vector of durable goods stocks’ adjustment equations.

This paper differs from Dixon and Lluch's contribution in that we assume that utility is not derived from the stocks of durables directly. Utility is derived from the characteristics that the durables yield. For example a car yields satisfaction to a consumer indirectly through characteristics like speed, comfort, safety, reliability, economy in petrol consumption, prestige and similar characteristics associated with the car. The idea of characteristics is best known from the work of Lancaster (1966, 1971), who assumes a constant objectively known characteristics matrix. This paper differs further from Lancaster (1966, 1971) in that we assume that characteristics of a durable change over time. Take the example of a car again. Over time, though, characteristics like capacity, associated with a particular car may be time invariant, most other characteristics like car reliability, petrol consumption, comfort, speed, prestige may change with the age of the car.