Kenneth Arrow (1921-2017) was a brilliant American economist renowned for his transformative contributions to both microeconomic and macroeconomic theory. In 1972, along with John Hicks, Arrow was honored with the Nobel Memorial Prize in Economics for his pioneering work in general equilibrium analysis and welfare economics.
Arrow’s research interests spanned a broad array of topics, including social choice theory, endogenous growth theory, collective decision-making, the economics of information, and the economics of racial discrimination.
Key Takeaways
- Kenneth Arrow was a towering figure in economics, noted for his extensive contributions to various subfields within the discipline.
- He was the co-recipient of the Nobel Prize in 1972, recognized for his groundbreaking work in general equilibrium and welfare economics.
- Among his major contributions is Arrow’s impossibility theorem in social choice theory, highlighting the complex challenges in fair decision-making processes.
Understanding Kenneth Arrow
Born in New York City in 1921, Kenneth Arrow held teaching positions at Stanford University, Harvard, and the University of Chicago. He earned his Ph.D. from Columbia University, where his dissertation introduced his famous General Impossibility Theorem. This theorem demonstrated the inherent difficulties in designing a fair voting system when more than two candidates are involved.
Arrow’s criteria for a fair voting system include:
- Nondictatorship: The decision should not be made by a single individual’s preference but should consider everyone’s choices.
- Individual Sovereignty: Voters should be free to rank their choices as per their true preferences, including expressing indifference or ties.
- Unanimity: If every voter prefers one candidate over another, the group’s ranking should reflect the same preference.
- Independence of Irrelevant Alternatives: The removal of a non-winning candidate should not affect the outcome for the remaining candidates.
- Uniqueness of Group Rank: The final ranking should be consistent, regardless of individual preferences.
Arrow’s theorem profoundly impacts fields beyond electoral systems. It has applications in welfare economics and social justice, intersecting with Amartya Sen’s liberal paradox, which explores tensions between equitable distribution and individual freedom.
Legacy of Kenneth Arrow
Arrow’s theoretical insights have stood the test of time, yet he acknowledged that his conclusions about competitive markets were based on ideal, often unrealistic, assumptions. He pointed out the limiting conditions such as the exclusion of third-party effects, which are prevalent in the real world.
Notably, Arrow’s notion of “learning by doing,” explored in the 1960s, laid the groundwork for endogenous growth theory. This idea posits that economic growth is driven by internal company policies that foster innovation and learning.
Kenneth Arrow’s legacy endures, providing foundational concepts that continue to shape modern economic thought. He passed away on February 21, 2017, but his theoretical innovations and their practical implications remain highly influential.
Related Terms: general equilibrium, welfare economics, endogenous growth, social choice theory, learning by doing
References
- The Nobel Prize. “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1972”.
- Britannica. “Kenneth J. Arrow”.
- Nobel Prize. “Kenneth J. Arrow Biographical”.
- Stanford Encyclopedia of Philosophy. “Arrow’s Theorem”.
- University of California San Diego. “Arrow and the Impossibility Theorem, Amartya Sen”.
- Kenneth J. Arrow. “Collected Papers of Kenneth J. Arrow: Social Choice and Justice”. Belknap Press, 1983.
- Econlib. “Kenneth Arrow, 1921–2017”.
- Brookings Institution. “Kenneth Arrow and the Promise of Behavioral Development Economics”.
- Arrow, Keneth J. “The Economic Implications of Learning by Doing”. The Review of Economic Studies, volume 29, issue #3, June 1962, pp. 155–173.
- Chaudhary Charan Singh University, Meerut. “Learning by Doing Model”.
- The Nobel Prize. “Kenneth J. Arrow Facts”.
