We study first-order logic with two variables FO2
and establish a small substructure property. Similar
to the small model property for FO2 we obtain an exponential
size bound on embedded substructures, relative to a fixed surrounding
structure that may be infinite. We apply this technique to analyse
the satisfiability problem for FO2 under constraints that require
several binary relations to be interpreted as equivalence relations.
With a single equivalence relation, FO2 has the finite model property
and is complete for non-deterministic exponential time, just as for plain
FO2. With two equivalence relations, FO2 does not have the finite
model property, but is shown to be decidable via a construction of
regular models that admit finite descriptions even though they may
necessarily be infinite. For three or more equivalence relations,
FO2 is undecidable.
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