National Medal of Science award ceremony, 2004
August 23, 1921 |
New York City, USA
General equilibrium theory
Social choice theory
|Alma mater||Columbia University
City College of New York
John C. Harsanyi
A. Michael Spence
Eric S. Maskin
|Contributions||General equilibrium theory
Fundamental theorems of welfare economics
Arrow's impossibility theorem
Endogenous growth theory
|Awards||John Bates Clark Medal (1957)
Nobel Prize in Economics (1972)
von Neumann Theory Prize (1986)
National Medal of Science (2004)
Kenneth Joseph Arrow (born August 23, 1921) is an American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972. To date, he is the youngest person to have received this award, at 51.
In economics, he is considered an important figure in post-World War II neo-classical economic theory. Many of his former graduate students have gone on to win the Nobel Memorial Prize themselves. Arrow's impact on the economics profession has been tremendous. For more than fifty years he has been one of the most influential of all practicing economists.
His most significant works are his contributions to social choice theory, notably "Arrow's impossibility theorem", and his work on general equilibrium analysis. He has also provided foundational work in many other areas of economics, including endogenous growth theory and the economics of information.
Arrow remains active on the international scene through a variety of initiatives including trustee of Economists for Peace and Security and a member of the Advisory Board of Incentives for Global Health, the not-for-profit behind the Health Impact Fund.
He graduated from Townsend Harris High School and then earned a Bachelor's degree from the City College of New York in 1940 in mathematics, where he was a member of Sigma Phi Epsilon. At Columbia University, he received a Master's degree in 1941. From 1946 to 1949 he spent his time partly as a graduate student at Columbia and partly as a research associate at the Cowles Commission for Research in Economics at the University of Chicago. During that time he also held the rank of Assistant Professor in Economics at the University of Chicago. In 1951 he earned his Ph.D. from Columbia.
Arrow and his wife Selma have two children, sons David and Andrew, both actors. Andrew is married to actress Donna Lynne Champlin.
He is currently the Joan Kenney Professor of Economics and Professor of Operations Research, Emeritus at Stanford University. He is also a founding member of the Pontifical Academy of Social Sciences. He is also currently a member of the Science Board of Santa Fe Institute.
A collection of Arrow's papers are housed at the Rubenstein Library at Duke University.
Arrow's impossibility theorem
General Impossibility Theorem: It is impossible to formulate a social preference ordering that satisfies all of the following conditions:
- Nondictatorship: The preferences of an individual should not become the group ranking without considering the preferences of others.
- Individual Sovereignty: each individual should be able to order the choices in any way and indicate ties
- Unanimity: If every individual prefers one choice to another, then the group ranking should do the same
- Freedom From Irrelevant Alternatives: If a choice is removed, then the others' order should not change
- Uniqueness of Group Rank: The method should yield the same result whenever applied to a set of preferences. The group ranking should be transitive.
The theorem has tremendous implications for welfare economics and theories of justice. It was extended by Amartya Sen to the liberal paradox which argued that given a status of "Minimal Liberty" there was no way to obtain Pareto optimality, nor to avoid the problem of social choice of neutral but unequal results.
An example of this would be to have the following choices to divide a cake between three people. Let us call them A, B and C.
Choice 1: A gets nothing, B and C get half each.
Choice 2: B gets nothing, A and C get half each.
Choice 3: C gets nothing, A and B get half each.
Choice 4: divide the cake equally.
Thus, if each person votes to get as much cake as possible, choice 4 would be third from the top in everyone's list, and would in any direct choice lose 2 to 1 against an unequal distribution. Since all of these choices are Pareto-optimal - no one's welfare can be improved without reducing the welfare of others - choice 4 would not be chosen, since there would always be other preferred choices.
General equilibrium theory
Working with Gérard Debreu, Arrow produced the first rigorous proof of the existence of a market clearing equilibrium, given certain restrictive assumptions. For this work and his other contributions, Debreu won the Nobel prize in 1983. Arrow went on to extend the model and its analysis to include uncertainty, the stability of equilibria, and whether a competitive equilibrium is efficient.
Arrow was instrumental in kick-starting research into endogenous-growth theory (also known as new-growth theory), which sought to explain the source of technical change, which is a key driver of economic growth. Until this theory came to prominence, technical change was assumed to occur exogenously—that is, it was assumed to occur outside economic activities, and was outside (exogenous) to common economic models. At the same time there was no economic explanation for why it occurred. Endogenous-growth theory provided standard economic reasons for why firms innovate, leading economists to think of innovation and technical change as determined by economic actors, that is endogenously to economic activities, and thus belong inside the model. A vast literature on this theory has developed subsequently to Arrow's pioneering work.
In other pioneering research, Arrow investigated the problems caused by asymmetric information in markets. In many transactions, one party (usually the seller) has more information about the product being sold than the other party. Asymmetric information creates incentives for the party with more information to cheat the party with less information; as a result, a number of market structures have developed, including warranties and third party authentication, which enable markets with asymmetric information to function. Arrow analysed this issue for medical care (a 1963 paper entitled "Uncertainty and the Welfare Economics of Medical Care", in the American Economic Review); later researchers investigated many other markets, particularly second-hand assets, online auctions and insurance.
Awards and honors
Arrow was elected a Fellow of the American Academy of Arts and Sciences in 1959. He was one of the recipients of the 2004 National Medal of Science, the nation's highest scientific honor, presented by President George W. Bush for his contributions to research on the problem of making decisions using imperfect information and his research on bearing risk.
- Arrow, Kenneth J., 1951a, "Alternative approaches to the theory of choice in risk-taking situations," Econometrica, 19: 404-437
- Arrow, Kenneth J., (1951b, 2nd ed. 1963). Social Choice and Individual Values. Wiley, New York. ISBN 0-300-01364-7.
- Arrow, Kenneth J., 1953, "Hurwicz's optimality criterion for decision making under ignorance," Technical Report 6, Stanford University
- Arrow, Kenneth J. and Gérard Debreu (1954). "Existence of a Competitive Equilibrium for a Competitive Economy". Econometrica (Econometrica, Vol. 22, No. 3) 22 (3): 265–90. JSTOR 1907353.
- Arrow, Kenneth J., 1959a, "Functions of a theory of behaviour under uncertainty," Metroeconomica, 11: 12-20
- Arrow, Kenneth J., 1959b, "Toward a Theory of Price Adjustment." In Moses Abramovitz et al., eds. The Allocation of Economic Resources: Essays in Honor of Bernard Francis Haley. Stanford: Stanford University Press
- _____, (1962). "The Economic Implications of Learning by Doing". Review of Economic Studies (The Review of Economic Studies, Vol. 29, No. 3) 29 (3): 155–73. doi:10.2307/2295952. JSTOR 2295952.
- Arrow, Kenneth J. (1963). "Uncertainty and the Welfare Economics of Medical Care". American Economic Review, 53 (5)., pp. 941–973 (press +).
- Arrow, Kenneth J., 1968, "Economic Equilibrium." In D. L. Sills (ed.) International Encyclopedia of the Social Sciences 4: 376–88. London and New York: Macmillan and the Free Press.
- Arrow, Kenneth J., 1969. "The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocations", in Analysis and Evaluation of Public Expenditures: The PPP System, Volume 1, pp. 47–64. Washington, D.C., Government Printing Office, Washington, PDF reprint as pp. 1-16 (press +) and in Arrow, 1983b, ch. 7, pp. 133–55.
- Arrow, Kenneth J. (1971). Essays in the Theory of Risk-Bearing. North-Holland Pub. Co., Amsterdam. ISBN 0-7204-3047-X.
- Arrow, Kenneth J. and Frank Hahn (1971). General Competitive Analysis. Holden-Day, San Francisco. ISBN 0-8162-0275-3.
- Arrow, Kenneth J., and Hurwicz, L. (1972) "Decision making under ignorance," in C. F. Carter and J.L. Ford (eds.), Uncertainty and Expectations in Economics. Essays in Honour of G.L.S. Shackle. Oxford: Basil Blackwell.
- Arrow, Kenneth J. (1974). The Limits of Organization. Norton, New York. ISBN 0-393-09323-9.
- Arrow, Kenneth J., 1977. "Extended Sympathy and the Possibility of Social Choice", American Economic Review, 67(1), p p. 219-225. Reprinted in Arrow. 1983a, pp. p. 147-61. ISBN 0-674-13760-4
- Arrow, Kenneth J. Collected Papers of Kenneth J. Arrow, Harvard University Press:
- 1983a, v. 1. Social Choice and Justice. Description and chapter-preview links. ISBN 0-674-13760-4
- 1983b, v. 2. General Equilibrium. Description and scroll to chapter-preview links.
- 1984a, v. 3. Individual Choice under Certainty and Uncertainty. Description and scroll to chapter-preview links.
- 1984b, v. 4. The Economics of Information. Description and chapter-preview links.
- 1985a, v. 5. Production and Capital. Description and chapter-preview links.
- 1985b, v. 6. Applied Economics. Description and scroll to chapter-preview links.
- Arrow, Kenneth J. (1987). "Rationality of self and others in an economic system," in R. M. Hogarth and M. W. Reder (eds.), Rational Choice. Chicago: The University of Chicago Press.
- Arrow, Kenneth J. (1994). "Methodological Individualism and Social Knowledge", American Economic Review, 84(2), pp. 1-9
- Arrow, Kenneth J. (2008). "Arrow's theorem." (Abstract) & "Hotelling, Harold (1895–1973)." (Abstract) in The New Palgrave Dictionary of Economics, 2nd Edition. Eds. Steven N. Durlauf and Lawrence E. Blume, Palgrave Macmillan Publishing,
- Kenneth J. Arrow and Gérard Debreu, ed. (2002)Landmark Papers in General Equilibrium Theory, Social Choice and Welfare, Edward Elgar Publishing. ISBN 978-1-84064-569-9.
- Arrow, Kenneth J. (2009). "Some Developments in Economic Theory Since 1940: An Eyewitness Account". Annual Review of Economics 1: 1. doi:10.1146/annurev.economics.050708.143405.
- Arrow information paradox
- Learning by doing
- List of economists
- List of Jewish Nobel laureates
- List of think tanks
- Abu N.M. Wahid (2002). Frontiers of Economics: Nobel Laureates of the Twentieth Century. Greenwood Publishing. p. 5. ISBN 0-313-32073-X.
- Steven Pressman (1999). Fifty major economists: Business & Economics. Routledge Publishing. p. 177. ISBN 0-415-13480-3.
- "Kenneth J. Arrow Papers, 1939-2009.". Rubenstein Library, Duke University.
- "Book of Members, 1780-2010: Chapter A". American Academy of Arts and Sciences. Retrieved 25 April 2011.
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- Kenneth J. Arrow: Nobel Prize in Economics Recipient by Seymour "Sy" Brody, Florida Atlantic University Libraries