Kelvin J. Lancaster's paper, "A New Approach to Consumer Theory," published in *The Journal of Political Economy* in 1966, critiques the traditional deterministic approach to consumer behavior and proposes a new framework that emphasizes the intrinsic properties of goods. The traditional theory, as developed by economists like Debreu and Uzawa, abstracts away from the specific characteristics of goods, treating them as mere units of utility. Lancaster argues that this approach fails to capture the complexity of consumer choices, particularly in the context of new commodities and quality variations. In his new approach, Lancaster posits that utility is derived from the characteristics of goods rather than the goods themselves. He introduces the concept of consumption activities, where goods are inputs and the output is a collection of characteristics. The consumer's preferences are ranked based on these characteristics, not directly on the goods. This framework allows for multiple characteristics per good and allows for goods to have different characteristics in combination. The structure of the consumption technology, represented by matrices \(A\) and \(B\), determines how goods and activities are transformed into characteristics. Lancaster's model includes a simplified version where there is a one-to-one correspondence between goods and activities, making it easier to analyze. He discusses the implications of different configurations of the number of characteristics, activities, and goods, and how these configurations affect consumer behavior. The model also introduces the concept of efficiency substitution effects, where changes in relative prices can lead to switches in the consumption of goods to achieve the same characteristics in the most efficient manner. The paper concludes by applying the new approach to labor-leisure and occupational choice, showing how it can explain both objective efficiency choices and private preferences. Lancaster's model provides a more nuanced understanding of consumer behavior, particularly in complex economies, and suggests that the traditional theory may not fully capture the dynamics of real-world consumer choices.Kelvin J. Lancaster's paper, "A New Approach to Consumer Theory," published in *The Journal of Political Economy* in 1966, critiques the traditional deterministic approach to consumer behavior and proposes a new framework that emphasizes the intrinsic properties of goods. The traditional theory, as developed by economists like Debreu and Uzawa, abstracts away from the specific characteristics of goods, treating them as mere units of utility. Lancaster argues that this approach fails to capture the complexity of consumer choices, particularly in the context of new commodities and quality variations. In his new approach, Lancaster posits that utility is derived from the characteristics of goods rather than the goods themselves. He introduces the concept of consumption activities, where goods are inputs and the output is a collection of characteristics. The consumer's preferences are ranked based on these characteristics, not directly on the goods. This framework allows for multiple characteristics per good and allows for goods to have different characteristics in combination. The structure of the consumption technology, represented by matrices \(A\) and \(B\), determines how goods and activities are transformed into characteristics. Lancaster's model includes a simplified version where there is a one-to-one correspondence between goods and activities, making it easier to analyze. He discusses the implications of different configurations of the number of characteristics, activities, and goods, and how these configurations affect consumer behavior. The model also introduces the concept of efficiency substitution effects, where changes in relative prices can lead to switches in the consumption of goods to achieve the same characteristics in the most efficient manner. The paper concludes by applying the new approach to labor-leisure and occupational choice, showing how it can explain both objective efficiency choices and private preferences. Lancaster's model provides a more nuanced understanding of consumer behavior, particularly in complex economies, and suggests that the traditional theory may not fully capture the dynamics of real-world consumer choices.