# Sum of Homothetic Functions

If two utility functions represent homothetic preferences, will their sum also be homothetic?

Defn: A function $h:\mathbb{R}^2\rightarrow \mathbb{R}$ is homogenous of degree $k$ if for every nonzero $\alpha$, $h(\alpha x, \alpha y)=\alpha^k h(x,y)$.

Defn: A function is homothetic if it is a monotonic transformation of a homogenous function.

Lemma: If $f$ is homothetic, i.e. $f=g\circ u$ for some strictly increasing $g$ and homogenous $u$ then $$\frac{\frac{\partial f}{\partial x}}{\frac{\partial f}{\partial y}} = \frac{g'(u(x,y))\frac{\partial u}{\partial x}}{g'(u(x,y))\frac{\partial u}{\partial y}}=\frac{\frac{\partial u}{\partial x}}{\frac{\partial u}{\partial y}}$$ is homogenous of degree zero.

Let

i) $u_1(x,y)=x+y$,

ii) $u_2(x,y)=\log(2x+y)$

Then, $u_1$ and $u_2$ are homothetic functions since they are monotonic transformations of homogenous functions (of degree 1). Let

iii) $u_3(x,y)=x+y+log(2x+y)$. Then

$$MRS_{u_3}=\frac{\frac{\partial u_3}{\partial x}}{\frac{\partial u_3}{\partial y}}=\frac{1+\frac{2}{2x+y}}{1+\frac{1}{2x+y}}=\frac{2x+y+2}{2x+y+1}$$ which is not homogenous of degree 0.

Hence, sum of homothetic functions is not necessarily homothetic.

• (+1) for including the (not so widely known) lemma. Perhaps you could consider including also its simple proof, so that it is clear that the MRS is homogeneous of degree zero, irrespective of the degree of homogeneity of $u$. Commented Oct 9, 2015 at 13:38

A homothetic preference means that for some utility function representing the preferences,

$$u(\alpha x, \ \alpha y) = \alpha u(x, \ y)$$ for any bundle $(x, \ y)$.

So now consider the sum of two different homothetic utility functions, $w$.

$$u(x, \ y), v(x, \ y)$$ $$w(x, \ y) = u(x, \ y) + v(x, \ y)$$ $$\alpha w(x, \ y) = \alpha u(x, \ y) + \alpha v(x, \ y)$$ $$= u(\alpha x, \ \alpha y) + v(\alpha x, \ \alpha y)$$ $$= w(\alpha x, \ \alpha y)$$

• It is highly likely that the definition of homotheticity of a function is more general than what is defined here. What you are defining here is more of the definition of homogeneity of degree 1. Commented Oct 9, 2015 at 7:15
• note: $u(x,y)=x+y+5$ is not homogenous but it is homothetic and it represents nomothetic preferences. Commented Oct 9, 2015 at 7:17
• Indeed the definition given is for homogeneous functions, which is a subset of homothetic functions. Commented Oct 9, 2015 at 13:40
• You guys are correct, I am making a stronger assumption than homotheticity. Commented Oct 9, 2015 at 14:40