A REFUTATION OF THE CHARACTERISTICS THEORY OF QUALITY PETER BOWBRICK ABSTRACT This is a formal refutation of the characteristics approach to the economics of quality, which is particularly associated with Kelvin Lancaster. Many of the criticisms apply equally to other approaches to the economics of quality. Copyright Peter Bowbrick,
[email protected] 07772746759. The right of Peter Bowbrick to be identified as the Author of the Work has been asserted by him in accordance with the Copyright, Designs and Patents Act. ABSTRACT Lancaster‟s theory of Consumer Demand is the dominant theory of the economics of quality and it is important in marketing. Most other approaches share some of its components. Like most economic theory this makes no testable predictions. Indirect tests of situation-specific models using the theory are impossible, as one cannot identify situations where the assumptions hold. Even if it were possible, it would be impracticable. The theory must be tested on its assumptions and logic. The boundary assumptions restrict application to very few real life situations. The progression of the theory beyond the basic paradigm cases requires restricting and unlikely ad hoc assumptions; it is unlikely in the extreme that such situations exist. All the theory depends on fundamental assumptions on preferences, supply and characteristics. An alternative approach is presented, and it is shown that Lancaster‟s assumptions, far from being a reasonable approximation to reality, are an extremely unlikely special case. Problems also arise with the basic assumptions on the objectivity of characteristics. A fundamental logical error occurring throughout the theory is the failure to recognize that the shape of preference and budget functions for a good or characteristic will vary depending on whether a consumer values a characteristic according to the level in a single mouthful, in a single course, in a meal, in the diet as a whole or in total consumption, for instance.