Latent separability: Grouping goods without weak separability

This paper develops a new concept of separability with overlapping groups-l atent separability. This is shown to provide a useful empirical and theoret ical framework for investigating the grouping of goods and prices. It is a generalization of weak separability in which goods are allowed to enter mor e than one group and where the composition of groups is identified by the c hoice of group specific exclusive goods. Latent separability is shown to be equivalent to weak separability in latent rather than purchased goods and provides a relationship between separability and household production theor y. For the popular class of linear, almost ideal and translog demand models and their generalizations, we provide a method for choosing the number of homothetic separable groups. A detailed method for exploring the compositio n of the separable groups is also presented. These methods are applied to a long time series of British individual household data on the consumption o f twenty two nondurable and service goods.