Pages 44-55 from Chipman, J., D. McFadden and M. Richter: PTe!

er'ences,
Uncertainty and Optimality, Westview Press, 1990.

Duality in Consumer Theory

Vijay Krishna and Hugo Sonnenschein

1. Introduction
The dual approach to demand theory is based on the fact that preferences can
be represented in two forms other than the utility function; these are the
expenditure function and the indirect utility function. Let U: R~ .........; R + be an
upper semi-continuous unbounded utility function. The expenditure function
e: R ~ x R + .........; R + generated by U is defined by e(p,u) = min p . x subject to
U (x) ~ u. The indirect utility function V: R~ x R+.........; R+ generated by U is
defined by V(p, /) = max U(x) subject to p . x !'/.
The usefulness of the dual approach results from two facts: First, the
Marshallian demand function can be computed from the indirect utility function
by differentiation. Second. the Hicksian demand function can be computed from
the expenditure function by differentiation. Both the Marshallian and Hicksian
demand functions are obtained only as implicit functions when one derives
demand directly from the utility function by the conventional Lagrange method.
The purpose of this essay is to prove some strong duality theorems. We
begin by defining a class of admissible utility functions U and we characterize
the set of expenditure functions 8 and indirect utility functions V that are
generated by U. We show that the function <P, which associates each U E U with
the expenditure function generated by U, is invertible. Similarly, we show that
the function X, which associates each U E U with the indirect utility function
generated by U. is invertible. Finally, we provide formulas for tP- I ,X-I. With
the results in hand, one is able to pass from (a) each utility function in U to a
unique equivalent expenditure function from 8 or indirect utility function from

V, (b) each
U or indire<
unique equi

Our sill

the followi:
(UI) L
(U2) L
(x I U(x);
(U3) L
(U4) L
(US) (
~ u) is COl
The d
The powel

admits ess.
demand tt
requiring I
and that (
demand fl
have a cc
weakened
Conditiom
tmnsforma
(UI) - (U~
Let U
denote by
to p . x!'J
subject to
by: e(p,u
generated
Provid

IU is
closed.

DUALITY IN CONSUMER TIJEORY

45

V. (b) each expenditure function in 8 to a unique equivalent utility function from

U or indirect utility function from V, (c) each indirect utility function from V to a

unique equivalent utility function from U or expenditure function from 8.

2. The Class U of Utility Functions

ences can
~ are the
R+ be an
junction
mbject to
1 by V is
First. the
, function
lted from
Hicksian
e derives
method.
ems. We
aracterize
that are
E U with
,how that
function
:-1. With
in U to a
lion from

Our starting point is the class of utility functions V: R ~ --" R + satisfying

the following conditions:
(U I) V is non-decreasing; that is, x - x' E R ~ implies that V (x) ~ V (x'),
(U2) V is upper semi-continuous; that is, for each u e R+, the set C(u)
[x I V (x) ~ u) is closed,
(U3) V (0) = 0,
(U4) V is unbounded. and
(US) V is quasi-concave. that is, for each u e R+, the set C(u):; [x I Vex)
~ u} is convex.
The class of utility functions satisfying these conditions is denoted by U.
The power of our strong duality theorems derives in part from the fact that U
admits essentially all preference relations that are considered in the neoclassical
demand theory. Observe that the Slutsky theory can be developed without
requiring preferences to be lower semi-continuous (Hurwicz and Uzawa. 1971),
and that (US) is necessary if demand is to be single-valued.! Furthermore,
demand functions which satisfy the strong axiom of revealed preference and
have a convex range can be generated by elements of U. (UI) could be
weakened at the cost of admitting negative prices and substantial complication.
Conditions (U3) and (U4) do not restrict preferences. since a suitable monotonic
transformation of a utility function satisfying (UI), (U2), and (US) will satisfy
(UI) - (US) and represent the same preferences as V.
Let V: R~ --"R+ satisfy (UI) - (U4). For p E R~, I e R+, and u e R+.
denote by max( p, /) the problem of choosing x e R~ to maximize V (x) subject
to p . x ~ / and by min (p,u) the problem of choosing x e R~ to minimize p . x
subject to V (x) ~ u. The expenditure function e generated by V is defined
by: e (p,u) is the value of min (p,u). Similarly, the indirect utility function V
generated by V is defined by: V ( p, /) is the value of max (p, I).
Provided that (U2) is satisfied, u is in the range of V, p e R~ and / e R+,
V(p,e(p,u) ~ u, and

(1)

IV is lower semi-continuous if for each u E R~. the lower contour set {.x I V (.x) 5> u 1 is
closed.

46

KRISHNA AND SONNENSCHEIN

(2)

e(p,V(p,l) 5,1.

The following theorem lists properties of expenditure functions that are

generated by a utility function.
THEOREM 1: Let U: R+ ---? R~ satisfy (Ul) to (U4). The expenditure
function e : R~ x R + ---? R + generated by U satisfies the following properties:
(el) e(p,) is non-decreasing,
(e2) e(p,) is lower semi-continuous.
(e3) e(,u) is non-decreasing.
(e4) e( p,u) = 0 if and only if u = 0,
(e5) e(p,) is unbounded.
(00) e(.u) is concave. and

(e7) e(,u) is positive homogenous of degree one.

PROOF: (el). (e3), (e4), and (e7) are easy to verify.

\

t
I

(e2): To show that e(p, .) is lower semi-continous, we must show Jhat for
each 1 the set (u I e (p,u) 5,1) is closed. Let u" e {u I e(p,u) 5,1] and u" ---?
uo. Let x" solve min (p,u") for each n, so p. x" = e(p,u"). The sequence
{x"} lies in the compact set {x e R I I p . x 5, 1]. By taking a subsequence, there
exists Xo such that x" ---? Xo and p . Xo 5, I. We verify that U (xo) :2: uo. Since
U (x") :2: u" for all nand u" ---? uo, we have that for arbitrary r > 0, U (X"):2:
u" :2: Uo r, for n sufficiently large. The upper semi-continuity of U, (U2),
implies that U(xo):2: uo, since r was arbitrary, Hence, Xo is feasible for
min (p,u 0). Thus, e( p,u 0) 5, p . xo 5, I.
(e5): We show that e(p, .) is unbounded as follows. Suppose there exists
an 1 such that e(p,u) 5, 1 for all u. Consider the sequence e(p,n) for n =
1,2,3, .... By (U4), for all n, there exists an x" such that e (p,u") = p . x". For
all n, U (x") :2: n by definition and by hypothesis p . x" 5, I. Let Xo solve
max(p,l). This implies that U(xo) :2: U(x") :2: n for all n. But this is
impossible. Hence, e(p, . ) is unbounded.
(e6): Let pi, p2 e R~ and t e [0,1]. Define p =tpl + (1 - t)p2 and =
te(pl,u)+(1-t)e(p2,u). We have to show that e(p,u):2:
Let solve
min (p,u). By definition, e(pl,u) 5, pi . and e(p2,u) 5, p2 .
The
desired conclusion follows immediately.

e.

x
x.

Q.E.D.

THEORlThI
function V g.
(VI) V(
(V2) V(
(V3) V(
(V4) V(
(V5) VI
(V6) V
(V7) V
PROOF:

(V2): TI
set {II V(
of the theor
J"e{JIV
non-decrea
and since'
[J I V{p,.
(V6): I

- T.
(p,
Notice thl
V(p, I) :$

letS
(e7), and
with the
U(x) :2: i
by Theor
invertibl(

THEO
The next theorem lists properties of indirect utility functions that are
generated by a utility function.

defined b
2Mc
cost/expen

47

DUAUTY IN CONSUMER TIIEORY

(2)
It are

iiture
rties:

THEOREM 2: Let U: R~ ~ R + satisfy (Ul) to (U4). The indirect utility

function V generated by U satisfies the following properties:
(VI) V (p,') is non-decreasing,

(V2) V(p,') is upper semi-continuous.

(V3) V (.,1) is non-increasing,

(V4) V(p,O) == 0,

(V5) V(p.) is unbounded.

(V6) V is quasi-convex. and

(V7) V is positive homogenous of degree zero.

PROOF: (VI), (V3), (V4), (V5), and (V7) are trivial to verify.

lence
there
Since

(V2): To show that V is upper semi-continuous in I, we need to show that the

set (I I V (p, /) ~ u) is closed. We will use the fact that under the hypotheses
of the theorem, (1) and (2) hold; also e is non-decreasing in u. Let I" ~ 1 and
I" e {I I V (p, I) ~ u}. By the definition of I", V (p, 1") ~ u. Since e is
non-decreasing in u, I" ~ e (p,V(p, 1") ~ e(p,u). Hence, 1 ~ e(p,u)
and since V is non-decreasing in I, V(p, 1) ;;:: V(p,e(p,u) ;;:: u. Thus, 1 e
{II V(p,/) ;;:: u).
(V6): Let pi, p2 e R~,/I, 12 e R+ and t e [0,1]. Define

t")~

(02),
~

for

:xists

Notice that {x I px 5: I)c(x I plx

V(p, I) 5: max(V(pl, Il),V(p2,/2)}.

S;

II)U(X I p2x

. n=

For
iolve
is is

e=
;olve
The

E.D.
. are

S;

I2}. Therefore,

Q.E.D.
3. The Class 8 of Expenditure Functions
Let 8 denote the class of functions e: R~ x R + ~ R + that satisfy (el) to
(e7), and let tp denote the function that associates each utility function U e U
with the expenditure function generated by U: L{>(U)]( p,u) = min {p . x I
U (x) ;;:: u}. Since U is a subset of the utility functions that satisfy (UI) to (U4),
by Theorem 1,4> (U) c 8. The next theorem proves that 4> (U) =8 and that tp is
invertible.2
THEOREM 3: The function tp: U~ 8 is a bijection; furthermore. 4>.-1 is
defined by
lMcFadden (1978) and others (see Diewert. 1982) have established a bijection between
cost/expenditure function and the level sets C (u).

48

KRISHNA AND SONNENSCHEIN

The concav
that for all pEl

cp-I (e)](x) =max B (x),

where
B(x)= (u

R+ I p'x :?: e(p,u), for all p

R~).

PROOF: The proof proceeds in three steps.

Step 1: For e ES let qrl (e):; U. We first show that U: R~ ~ R + is well
defined. Let x E R~. By (eA), 0 E B (x) and so B (x) is not empty. To assure
that U is well defined we verify that B (x) is bounded above and closed. The

former follows from the fact that e (p, .) is unbounded, (e5), and the latter
follows from the lower semi-continuity of e (p, . ) and the fact that the inner.
section of closed sets is closed. Since (el) implies that if u E B (x) and u' ~ u,
then u' E B (x), it follows that B (x) is an interval.
We now verify properties of U.
(UI): Let x :?: x'. By definition of B, B(x):JB(x'), and so U(x) ~
U (x'). Hence U is non-decreasing.
(U2): We must show that for all u, C (u):; (x I U (x) ~ u) = {x I for
all p, p . x ~ e (p,u)} is closed. Let x" E C (u) for all n and x" ~ xo. For all
p, and for all n, p . x" ~ e(p,u). Thus p . Xo :?: e(p,u) for all p, and so
Xo E C (u). Hence, U is upper semi-continuous.
(U3) is a direct consequence of (eA).
(U4): We argue by contradition. Suppose there exists a u such that for all
x E R~, U (x) < U. Using the definition of U, this means that for all x E RL there
exists apE R ~ such that e (p, u) > p . x. Since e ( . ,u) is concave, it is
bounded on P = {p E R~ I II p II = I]. Let e be an upper bound of e ( . , u) on
P, and let x = (e, e, ... e) E R~. Now, for all p E R~,

--2- -) < ----2-(- -

e ( lip II ' u

- e - lip II

':'\_--2-.

e, e, ... , e, - lip II

U(x) ~ uO, I

. Iar p
particu
U(x) ~ uO a
generates the
Step 3: f
let ",(U) =e ~
Let x* E
R~, e(p,u*'

Next, if I
x* Ii C( u'):

condition: x
exists a p* E
e(p*, u') ar
U* =U.

x.

Using (e7), this implies that for all p E R~, e(p, u) ~ p . x. But this
contradicts our hypothesis.
(U5): Since C(u)= (x I U(x) ~ u)::: {x I px ~ e(p,u), for all pE
R~) is convex for each u, U is quasi-concave.
Step 2: We next show that cp(q,-I (e = e for all e E 8. Let e E 8 and U =
cp-I(e). We will prove that for each (po,uo),e(po,uo)=min{po.x I
U(x) ~ u).

First, note that

the jth compol
e ( . , uo) is nOl
Second, W(
t > 0, e(tpo u
of e, this can
yields e (po,
Thuse(po,u'
Now, ush
p E R~. By
uO. Thus, x(

~sus

problem: SU)
x E C and x'
x E C. pO, XO
we can cons\n;

49

DUAUfY IN CONSUMER 11IEORY

The concavity of e( . , uO), (e6), implies that there exists an XO

that for all p IS R~

IS

R' such

(3)

R+ is well
To assure
losed. The
j the latter
It the inner
nd u' S; u,

U(x) ~

I=

(x I for

xo. For an
P. and so

that for all

e Ri, there
cave, it is
e(, u) on

First, note that x o IS R~. This is verified by choosing p =po + e i (where e i is

the jth component of the unit basis) in (3) for j = 1,2, ... , I, and using the fact
e ( . , uO) is non-decreasing, (e3).
Second, we show e (po, u 0) == p O xO. Again, from (3) we have that for all
t > 0, e (tpo ,uo) S; e (po, uO) + (tpo - po) . xO. Using (e7), the homogeneity
of e, this can be rewritten as, (t -1)e(po, uO) S; (t -1) pO. xO. For t> 1 this
yields e(po, uO) S; pO xo. For t < 1, the opposite inequality is obtained.
Thus e(po, u O) = pO. x O.
Now, using e(po, uO) po xo in (3) yields e(p,uo) S; p xo for all
p IS R~. By the definition of B (xo), UO IS B(xo), and U (xo) == max B (xo) ~
uO. Thus, X O is feasible for mine pO, uO). Furthermore, if x IS R~ satisfies
U (x) ~ uO, then UO IS B (x), or equivalently, p . x ~ e(p,uo) for all p. In
particular p O . x ~ e (p u 0) == p O . xO. Thus X O minimizes p O . x subject to
U(x) ~ uO and e(po, uO)=minpox subject to U(x) ~ uO. Therefore, U
generates the expenditure function e.
Step 3: Finally, we show that for all U e U, 0/-1 [ q>(U)] = U. For U IS U,
let J(U) =e and -l(e) == U*. We claim that U* = U.
Let x* IS R~. First, notice that u* = U (x*) e B (x*), since for any p IS
R~, e( p,u*) S; p . x*.
Next, if u' > u*, then we claim that u'., B(x*). Now, u' > u* implies that
x*., C(u')== (x I U(x) 2: u'}. C(u') is closed, convex, and satisfies the
condition: x IS C ( u') and (x' - x) E Ri implies that X'IS C ( u'). Hence, there
exists a p* E R~, such that p* . x* < p* . x for all x e C (u,).3 Thus, p* . x* <
e(p*, u')andu'., B(x*). We have shown that U(x*)=maxB(x*). Hence

U* ==U.

Q.E.D.

But this

Ir all

PIS

8andU=
I [po. x I

'nUs uses the following fact, which is a modification of a standard separating hyperplane
problem: Suppose C c R~ is a closed, convex set that satisfies the condition that
%. C and %' - % R~ imply that %' C. II %0 * C. then there exists a pO. R~+ such that for all
%. C, po . %0 < po . %. (To prove this fact. observe that if p R~ - ( 0 I separates %0 from C, then
we can construct a po R~, very dose to p. that still separates %0 from C.)

50

KRISHNA AND SONNENSCHEIN

PROOF OF LEM:

4. The Class V of Indirect Utility Functions

Let V denote the class of functions V: R ~ x R + -+ R + that satisfy

(VI) - (V7). and let X denote the function that associates each utility function
U E U with the indirect utility function generated by U: [ X (U)]( p. I) ==
max {U (x) : p . x ~ I]. Since U is a subset of the utility functions that satisfy
(U1) - (U4). by Theorem 2. X (U) E V. Theorem 4 proves that X (U) = V and

that X is invertible.
THEOREM 4: The funclion X: U -+ V is a bijection; furlhermore, X-I is
defined by [X-I(V)](x)==max (u I V(P. p x) ~ u for all p E R~}.
The proof follows from a sequence of Lemmas. Lemma 1 introduces a
function "': V-+ fJ and shows that it is well defined. Lemma 2 shows that", is

a bijection and defines ",-I. Lemma 3 establishes that X = ",-I 0", and hence
that X is a bijection. Finally. Lemma 4 shows that X-I is defined by lX-I (V)] (x)
=max{u I V(P.px):?! u.forallpER~}.
LEMMA 1: Suppose Ve V. Define ",(V): R~ xR+ -+R+ by [",(V)](P.u)
== sup [I I V(P. /) < use. Then. "': V-+ fJ is well defined.

Before we begin the proof. we draw attention to Figure 1. which indicates

that elements of fJ and V are not necessarily continuous in u and I respectively
and shows the relation between V and ",(V).

[",(V)](P.u)

To prove the

e = ",(V).
(e1). (e3). (e4:
(e2): To pre
u" E (u I e(p.u)
V(P. 1) ~ U". J
e (P . ) is lower:
(e6): To pn)'
Define p == lp I +
that e(p.u) ~

e.

For each r >

< u. Similarly. tl
Define 1== 1I1 +
(pl. II). V(p2.
e(p.u) ~ I>e

V(p.' )

LEMMA 2:

14

defined by.

13
PROOF:

u\

Ob

12

"'v

I}

I}
i

12

13

14

II

Figure 1

u\

II.

Theproofp
Step 1: For
(Vl). (V3).
(V2): Wen
Let V(P. 1") ;:
that I" ~ e(p.
(V6): Let

(p2.I2) ~

51

DUAllTY IN CONSUMER TIlEORY

PROOF OF LEMMA

that satisfy
Iity function
(U)](p, J)

1: Observe that since V(p, . ) is upper semi-continuous,

[\jI(V)](p,U) = min (II V(p, I) 2! u).

(4)

s that satisfy
(U) V and
tore, X-I is
}

introduces a
IWS that \jI is
I' and hence
[X-I(V)](x)
\jI(V)] (p,u)

ch indicates
respectively

To prove the lemma we must show that for all V eV, \jI(V) e 8. Let

e ",(V).
(eI), (e3), (e4), (e5), and (e7) follow directly from the definition of "'(V).
(e2): To prove the lower semi-continuity of e(p, .) we use (4). Let
u" e (u I e(p,u) ~ 1) and u"--') uo. For all n, e(p,u") ~ 1. By (4),
V(p, 1) 2! u",foralln. Thus, V(p, 1) 2! uO,andsoe(p,uo) ~ 1. Hence,
e (p, .) is lower semi-continuous.
(e6): To prove the concavity of e(,u), let pl,p2eR~ and Ie [0,1].
Define p::: tp 1+ (1- I) p2 and e== le(pl ,u) + (1- t) e(p2 ,u). We must show

e.

thate(p,u) 2!
For each r > 0, there exists an II such that II> e(pl,u) - rand V(pl,/l)
< u. Similarly, there exists an 12 such that 12> e(p2,u) rand V(p2,/2) < u.
Define I=t/ l +(I-t)/ 2 By the quasi-convexity of V, V(p,l) ~ max {V
(p I'll), V(p2,/2) < u. Furthermore, I> e- r. But by the definition of e,
e(p,u) 2! I>
r. Thus, for all r > 0, e(p,u) >
r. Hence, e(p,u) 2!

e-

e-

e.

Q.E.D.
LEMMA

2: The function", : V--') 8 is a bijection; furthermore, \jI-1 is

defined by,
[",-1 (e)](p,l)
PROOF:

V)](P, .)

to

=max (u

I e(p,u) ~ I}.

Observe that

[",-I(e)](p,/)=inf[u I e(p,uI}.

(5)

The proof preceeds in three steps.

Step 1.' For e e 8, let ",-I (e) ::: V. We first verify that Ve V.
(VI), (V3). (V4), (V5), and (V7) follow directly from the definition of ",-1 .
(V2): We must show that the set [I I V(p, /) 2! u} is closed for all u e R+.
Let V (p, 1") 2! u for all n, and I" --') 1. By definition, V (p, 1") 2! u implies
that/" 2! e(p,u). Thus,/o 2! e(p,u) and hence, V(p, I) 2! u.
(V6): Let (pl,/l) and (p2,/2) be such that V(pl,/l) ~ UO and V
(p2,/2) Suo. Define (,p,l):::t(pl,/I)+{l t)(p2,/2) for 0 S t S 1.

52

KRISHNA AND SONNENSCHEIN

Using (5), we have that for all n,

e(p2,u) >/2}.

UO

1
+ - e (u I e(pl,u) > II}

(u I

Hence, by the concavity of e( ,u), (00), e(p,u o + 1.)

t . e(pl,uO + 1.) + (1- t)e(p2,uO + 1.) > 'i. Thus, for all n, UO + 1. e

consequence of
Now, [",-1 (,
V(p, p x) ~

expression.

{u I e ( p,u)
_ > I}. Using (5) again, yields that V (p,/) s; u

+ 1.,
n for all n, and

thus V(p, I) S; uo.

Step 2: We now show that", [",-1 (e)] = e for each e e 6. For e e 6, let
",-1 (e) = V and ",(V):::: e"'. We show that e:::: e"'. Let (p,u) be arbitrary.
The definition of ",-l(e) yields V(p, e(p,u ~ u. Using the fact and
applying the definition of ",(V) implies that e (p,u) ~ e'" (p,u).
On the other hand (4) implies that V(p,e"'(p,u ~ u. Using this fact in
the definition of ",-1 (e) immediately implies that e(p,u) S; e'" ( p,u).
Hence, e = e"',
Step 3: Finally, we show that for each V e V, ",-1 ["'(V)] = V.
For V e V, let "'(V) = e and ",-1 (e) = V*. We show that V = V*. Let (p, I)
be arbitrary,
The definition of ",-l(e) yields e(p,V*(p, I) S; I. Using this fact in (4)
then implies that V( p,l) C! V'" (p, I).
On the other hand, (4) implies that e(p,V(p,/) s;/. Applying the
definition of ",-1 (e) yields V (p, I) S; V* (p, I).
Hence, V = V*.
LEMMA 3: X = ",-1 0 <P
PROOF: For U e U, let (U)= e. By Theorem I, e e 6. We must show
that ",-1 (e) is the indirect utility function generated by U.
Let Xo solve max( p,/), It is sufficient to show that U (xO):::: [",-1 (e )]( p, /).
Since(U)=e, e(p,U(x S; p xo S; I. Thus, U(xo)e (u I e(p,u) S;
I}. It remains to show that it is the largest element of this set; that is, if
u > U(x), then e(p,u) > I.
Suppose u' > U{xo) and e(p,u') S; I. Let x' be the solution to min(p,u').
Thus, U (x') ~ u' > U (xo) and p . x' = e{p,u') S; I. This contradicts the fact
that XO solves max(p, I). Hence, u' > U(x) implies that e(p,u') > I.
Thus, U(xo) = max (u I e (p,u) S; I} :::: [",-1 (e)](p,/).
Q.E.D.
LEMMA 4: [X- 1 (V)](x) = max (u I V(p,p . x) ~ u, for all p e R~).
PROOF: By Lemma 3, X = ",-1 o, and since both
and", are bijections,
so are Xand X-I = -1 0 ",.

1>

For V e V, let "'(V) =e. We claim that (u I V(p, p . x) ~ u, for all p e

R~)= {u Ipx ~ e(p,u), for allpeR~}. This is an immediate

The previot
THEOREM

bijections.

Starting wi
unique utility t
applying ",-1
utility functio
generates V, ar

The key tc
functions U. S
allow for the p
of U is not COl
not strictly im
inverse functi(
by a method
introduction, '

DUAUTYINCONSUMER TIlEORY

'I}

,-

,p,u

{u I
1)
+
n

1
uo +-e
n
)r all n, and

53

consequenceof(4),sinceV(p,px):!: uifandonlyife(p.u) s; px.

Now, ['V-l (e)](x) = max (u I p . x :!: e(p,u), for all p e R~} = max {u I
V (p, p . x) :!: u, for all p e R~ 1, and writing e ='V( V) yields the required
expression.
Q.E.D.
5. Strong Duality Theorems

r e e 8, let
uy.

The previous results are summarized in the following theorem.

e fact and

this fact in

THEOREM
bijections.

5: The following diagram commutes and 1>, X, and 'V are

Let (p, /)
fact in (4)
plying the

v
nust show
:e)](p, I).
~(p,u) S;

that is, if
lin(p,u').
ts the fact

------\111...

Figure 2
Starting with an arbitrary expenditure function e from 8, U =1>-1 (e) is the
unique utility function in U that generates e. U can alternatively be obtained by
applying 'V-I and the X-I to e. Similarly, starting with an arbitrary indirect
utility function V from V, U =X-I (V) is the unique utility function that
generates V. and the unique utility function that generates 'V(V), etc.
A Comment

Q.E.D.

I.
fijections,
Ir all p e

nmediate

The key to the strong duality theorems is the choice of the class of utility
functions U. Since we do not require lower semi-continuity for each U e U, we
allow for the possibility that the indirect utility function generated by an element
of U is not continuous. Furthermore, under our assumptions, each e e 1> (U) is
not strictly increasing in u, and so e = (U) and V =X(U) are in general not
inverse functions for each fixed p. This requires that we relate '(U) and X(U)
by a method that is not standard; this is the role of 'V. As we said in the
introduction, we prefer to work with U, rather than the subset U* of U obtained

54

KRISHNA AND SONNENSCHEIN

by restricting utility functions to be continuous because U is sufficient for the

classical theorems of demand analysis. In addition, previous attempts to identify
'II (U*) have involved awkward conditions. (See Diewert 1982, Theorems 1 and
2 and the comments which follow.)

Diewert. E.
Eel

No
Hurwicz, L al

De
Yo
McFadden, I
Ap
10

Figure 3
This fact is illustrated by the example of Figure 3: U is upper semi
continuous and generates an expenditure function e which belongs to e. The
function e is strictly increasing, it inverts (for each p) to give the continuous
indirect utility function V = X(U), and in short it satisfies just about every
natural condition that an expenditure function can be expected to satisfy.
However. it is clear that e cannot be generated by any continuous utility
function. Since e t!i t:p (U*), the example proves that : u* ---+ e is not a
bijection; the example also indicates why it is difficult to describe'll (U*). An
alternative route for obtaining a strong duality theorem is to choose U** c U*
so that'll (U**) c I; can be naturally described and'll: U** ---+ 'II (U**) is a
bijection.
A tidy theory would require, in addition, that X (U**) can be naturally
described and that X: U** ---+ X(U**) c X(U) is a bijection.

DUALITY IN CONSUMER 11lEORY

the
llify

and

55

References
Diewert. E. "Duality Approaches to Microeconomic Theory." In HaNibook of MalhemtJlical
Ecol'lOmics, vol. 2, edited by K. J. Arrow and M. D. Intriligator,535-99. Amsterdam:
Nonh-HoUand.1982.
Hurwicz, Land H. Uzawa. "On the Integl1lbility of Demand Functions." In Pr~f~r~lIus, Utility and
D~mtJnd, edited by J. S. Chipman, M. N. Richter, and H. Sonnenschein. 114-48. New
York: Harcourt, Bl1Ite, Jovanovich, 1971.
McFadden. D. "Cost, Revenue. and Profit Functions." In ProducliOll ECOllOmics: A Duo.l
Approach to Theory and ApplicaliollS. vol. 1. edited by M. Fuss and D. McFadden. 3
109. Amsterdam: Nor!h-HoUand. 1978.

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